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2017 National Trade Estimate Report on

FOREIGN TRADE
BARRIERS

Office of the United States Trade Representative


ACKNOWLEDGEMENTS

The Office of the United States Trade Representative (USTR) is responsible for the preparation of this
report. Acting U.S. Trade Representative Stephen Vaughn gratefully acknowledges the contributions of
the Departments of Agriculture, Commerce, Labor, Justice, State, Transportation, and the U.S. International
Trade Commission.

In preparing the report, substantial information was solicited from U.S. Embassies abroad. Drafts of the
report were circulated through the interagency Trade Policy Staff Committee.

Assistant U.S. Trade Representative for Trade Policy and Economies:


Ed Gresser

Project Director:
Donald W. Eiss

Project Staff:
Dorothea E. Cheek
Caper Gooden
Mark C. Jordan
Katherine Standbridge
Yvonne Jamison
LIST OF FREQUENTLY USED ACRONYMS
AD ................................................................................... Antidumping
AGOA ............................................................................. African Growth and Opportunity Act
APEC .............................................................................. Asia Pacific Economic Cooperation
ASEAN ........................................................................... Association of Southeast Asian Nations
ATC ................................................................................ Agreement on Textiles and Clothing
ATPA .............................................................................. Andean Trade Preferences Act
ATPDEA ......................................................................... Andean Trade Promotion & Drug Eradication
Act
BIA.................................................................................. Built-In Agenda
BIT .................................................................................. Bilateral Investment Treaty
BOP ................................................................................. Balance of Payments
CACM ............................................................................. Central American Common Market
CAFTA ........................................................................... Central American Free Trade Area
CARICOM ...................................................................... Caribbean Common Market
CBERA ........................................................................... Caribbean Basin Economic Recovery Act
CBI .................................................................................. Caribbean Basin Initiative
CFTA .............................................................................. Canada Free Trade Agreement
CITEL ............................................................................. Telecommunications division of the OAS
COMESA ........................................................................ Common Market for Eastern & Southern Africa
CTE ................................................................................. Committee on Trade and the Environment
CTG ................................................................................ Council for Trade in Goods
CVD ................................................................................ Countervailing Duty
DDA ................................................................................ Doha Development Agenda
DOL ................................................................................ Department of Labor
DSB ................................................................................. Dispute Settlement Body
EAI .................................................................................. Enterprise for ASEAN Initiative
DSU ................................................................................ Dispute Settlement Understanding
EU ................................................................................... European Union
EFTA .............................................................................. European Free Trade Association
FTAA .............................................................................. Free Trade Area of the Americas
FOIA .............................................................................. Freedom of Information Act
GATT .............................................................................. General Agreement on Tariffs and Trade
GATS .............................................................................. General Agreements on Trade in Services
GDP ................................................................................ Gross Domestic Product
GEC ................................................................................ Global Electronic Commerce
GSP ................................................................................. Generalized System of Preferences
GPA ................................................................................ Government Procurement Agreement
IFI.................................................................................... International Financial Institution
IPR .................................................................................. Intellectual Property Rights
ITA .................................................................................. Information Technology Agreement
LDBDC ........................................................................... Least-Developed Beneficiary Developing
Country
MAI ................................................................................. Multilateral Agreement on Investment
MEFTA ........................................................................... Middle East Free Trade Area
MERCOSUL/MERCOSUR ............................................ Southern Common Market
MFA ................................................................................ Multifiber Arrangement
MFN ................................................................................ Most Favored Nation
MOSS.............................................................................. Market-Oriented, Sector-Selective
MOU ............................................................................... Memorandum of Understanding
MRA ............................................................................... Mutual Recognition Agreement
NAFTA ........................................................................... North American Free Trade Agreement
NEC ................................................................................ National Economic Council
NIS .................................................................................. Newly Independent States
NSC ................................................................................. National Security Council
NTR ................................................................................ Normal Trade Relations
OAS ................................................................................ Organization of American States
OECD.............................................................................. Organization for Economic Cooperation and
Development
OPIC ............................................................................... Overseas Private Investment Corporation
PNTR .............................................................................. Permanent Normal Trade Relations
ROU ................................................................................ Record of Understanding
SACU .............................................................................. Southern African Customs Union
SADC .............................................................................. Southern African Development Community
SME ................................................................................ Small and Medium Size Enterprise
SPS .................................................................................. Sanitary and Phytosanitary Measures
SRM ............................................................................... Specified Risk Material
TAA ................................................................................ Trade Adjustment Assistance
TABD.............................................................................. Trans-Atlantic Business Dialogue
TACD.............................................................................. Trans-Atlantic Consumer Dialogue
TAEVD ........................................................................... Trans-Atlantic Environment Dialogue
TALD .............................................................................. Trans-Atlantic Labor Dialogue
TBT ................................................................................. Technical Barriers to Trade
TEP ................................................................................. Transatlantic Economic Partnership
TIFA................................................................................ Trade & Investment Framework Agreement
TPRG .............................................................................. Trade Policy Review Group
TPP.................................................................................. Trans-Pacific Partnership
TPSC ............................................................................... Trade Policy Staff Committee
TRIMS ............................................................................ Trade Related Investment Measures
TRIPS.............................................................................. Trade Related Intellectual Property Rights
T-TIP ............................................................................... Trans-Atlantic Trade and Investment Partnership
UAE ................................................................................ United Arab Emirates
UNCTAD ........................................................................ United Nations Conference on Trade &
Development
UNDP.............................................................................. United Nations Development Program
URAA ............................................................................. Uruguay Round Agreements Act
USDA.............................................................................. U.S. Department of Agriculture
USITC ............................................................................. U.S. International Trade Commission
USTR .............................................................................. United States Trade Representative
VRA ............................................................................... Voluntary Restraint Agreement
WAEMU ........................................................................ West African Economic & Monetary Union
WB ................................................................................. World Bank
WTO .............................................................................. World Trade Organization
TABLE OF CONTENTS

FOREWORD .................................................................................................................................. 1
ALGERIA ....................................................................................................................................... 7
ANGOLA ...................................................................................................................................... 13
ARAB LEAGUE .......................................................................................................................... 17
ARGENTINA ............................................................................................................................... 23
AUSTRALIA ................................................................................................................................ 35
BAHRAIN .................................................................................................................................... 39
BANGLADESH ........................................................................................................................... 41
BRAZIL ........................................................................................................................................ 47
BRUNEI DARUSSALAM ........................................................................................................... 59
CAMBODIA ................................................................................................................................. 61
CANADA ..................................................................................................................................... 65
CHILE ........................................................................................................................................... 73
CHINA .......................................................................................................................................... 77
COLOMBIA ................................................................................................................................. 97
COSTA RICA ............................................................................................................................. 105
DOMINICAN REPUBLIC ......................................................................................................... 111
ECUADOR ................................................................................................................................. 115
EGYPT ........................................................................................................................................ 123
EL SALVADOR ......................................................................................................................... 129
ETHIOPIA .................................................................................................................................. 135
EUROPEAN UNION ................................................................................................................. 139
GHANA ...................................................................................................................................... 185
GUATEMALA ........................................................................................................................... 191
HONDURAS .............................................................................................................................. 195
HONG KONG ............................................................................................................................ 199
INDIA ......................................................................................................................................... 201
INDONESIA ............................................................................................................................... 219
ISRAEL....................................................................................................................................... 239
JAPAN ........................................................................................................................................ 243
JORDAN ..................................................................................................................................... 259
KAZAKHSTAN ......................................................................................................................... 261
KENYA....................................................................................................................................... 267
KOREA ....................................................................................................................................... 275
KUWAIT .................................................................................................................................... 289
LAOS .......................................................................................................................................... 293
MALAYSIA ............................................................................................................................... 297
MEXICO ..................................................................................................................................... 303
MOROCCO ................................................................................................................................ 311
NEW ZEALAND........................................................................................................................ 315
NICARAGUA............................................................................................................................. 317
NIGERIA .................................................................................................................................... 323
NORWAY................................................................................................................................... 329
OMAN ........................................................................................................................................ 333
PAKISTAN ................................................................................................................................. 337
PANAMA ................................................................................................................................... 343
PARAGUAY .............................................................................................................................. 347
PERU .......................................................................................................................................... 351
THE PHILIPPINES .................................................................................................................... 355
QATAR ....................................................................................................................................... 363
RUSSIA ...................................................................................................................................... 367
SAUDI ARABIA ........................................................................................................................ 385
SINGAPORE .............................................................................................................................. 391
SOUTH AFRICA........................................................................................................................ 395
SRI LANKA ............................................................................................................................... 403
SWITZERLAND ........................................................................................................................ 409
TAIWAN .................................................................................................................................... 413
THAILAND ................................................................................................................................ 421
TUNISIA..................................................................................................................................... 431
TURKEY .................................................................................................................................... 435
UNITED ARAB EMIRATES..................................................................................................... 443
UKRAINE................................................................................................................................... 449
VENEZUELA ............................................................................................................................. 455
VIETNAM .................................................................................................................................. 463
APPENDIX I .............................................................................................................................. 473
APPENDIX II ............................................................................................................................. 477
FOREWORD
SCOPE AND COVERAGE

The 2017 National Trade Estimate Report on Foreign Trade Barriers (NTE) is the 32nd in an annual series
that highlights significant foreign barriers to U.S. exports. This document is a companion piece to the
President’s Trade Policy Agenda published by USTR in March.

In accordance with section 181 of the Trade Act of 1974, as added by section 303 of the Trade and Tariff
Act of 1984 and amended by section 1304 of the Omnibus Trade and Competitiveness Act of 1988, section
311 of the Uruguay Round Trade Agreements Act, and section 1202 of the Internet Tax Freedom Act, the
Office of the U.S. Trade Representative is required to submit to the President, the Senate Finance
Committee, and appropriate committees in the House of Representatives, an annual report on significant
foreign trade barriers. The statute requires an inventory of the most important foreign barriers affecting
U.S. exports of goods and services, foreign direct investment by U.S. persons, and protection of intellectual
property rights. Such an inventory enhances awareness of these trade restrictions and facilitates
negotiations aimed at reducing or eliminating these barriers.

This report is based upon information compiled within USTR, the Departments of Commerce and
Agriculture, and other U.S. Government agencies, and supplemented with information provided in response
to a notice published in the Federal Register, and by members of the private sector trade advisory
committees and U.S. Embassies abroad.

Trade barriers elude fixed definitions, but may be broadly defined as government laws, regulations, policies,
or practices that either protect domestic goods and services from foreign competition, artificially stimulate
exports of particular domestic goods and services, or fail to provide adequate and effective protection of
intellectual property rights.

This report classifies foreign trade barriers into ten different categories. These categories cover
government-imposed measures and policies that restrict, prevent, or impede the international exchange of
goods and services. The categories covered include:

 Import policies (e.g., tariffs and other import charges, quantitative restrictions, import licensing,
customs barriers, and other market access barriers);

 Sanitary and phytosanitary measures and technical barriers to trade;

 Government procurement (e.g., “buy national” policies and closed bidding);

 Export subsidies (e.g., export financing on preferential terms and agricultural export subsidies that
displace U.S. exports in third country markets);

 Lack of intellectual property protection (e.g., inadequate patent, copyright, and trademark regimes
and enforcement of intellectual property rights);

 Services barriers (e.g., limits on the range of financial services offered by foreign financial
institutions, restrictions on the use of foreign data processing, and barriers to the provision of
services by foreign professionals);

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 Investment barriers (e.g., limitations on foreign equity participation and on access to foreign
government-funded research and development programs, local content requirements, technology
transfer requirements and export performance requirements, and restrictions on repatriation of
earnings, capital, fees and royalties);

 Government-tolerated anticompetitive conduct of state-owned or private firms that restricts the sale
or purchase of U.S. goods or services in the foreign country’s markets;

 Digital trade barriers (e.g., restrictions and other discriminatory practices affecting cross-border
data flows, digital products, Internet-enabled services, and other restrictive technology
requirements); and

 Other barriers (barriers that encompass more than one category, e.g., bribery and corruption,i or
that affect a single sector).

Pursuant to Section 1377 of the Omnibus Trade and Competitiveness Act of 1988, USTR annually reviews
the operation and effectiveness of U.S. telecommunications trade agreements to make a determination on
whether any foreign government that is a party to one of those agreements is failing to comply with that
government’s obligations or is otherwise denying, within the context of a relevant agreement, “mutually
advantageous market opportunities” to U.S. telecommunication products or services suppliers. The NTE
highlights both ongoing and emerging barriers to U.S. telecommunication services and goods exports used
in the review called for in Section 1377.

To highlight the growing and evolving trade using or enabled by electronic networks and information and
communications technology, and reflecting input from numerous stakeholders, relevant country chapters
include a dedicated section on barriers to digital trade. This section addresses all issues that are integral to
the digital economy including those barriers formerly categorized under “electronic commerce.” The
section will highlight ongoing and emerging barriers such as restrictions and other discriminatory practices
affecting cross-border data flows, digital products, Internet-enabled services, and other restrictive
technology requirements. This adjustment will ensure that the information presented in the NTE reflects
market developments for U.S. exports.

The NTE continues to highlight the increasingly critical nature of standards-related measures (including
testing, labeling and certification requirements) and sanitary and phytosanitary (SPS) measures to U.S.
trade policy, to identify and call attention to problems and efforts to resolve them during the past year and
to signal new or existing areas in which more progress needs to be made. Standards-related and SPS
measures serve an important function in facilitating international trade, including by enabling small and
medium sized enterprises (SMEs) to obtain greater access to foreign markets. Standards-related and SPS
measures also enable governments to pursue legitimate objectives such as protecting human, plant, and
animal health, the environment, and preventing deceptive practices. But standards-related and SPS
measures that are nontransparent and discriminatory can act as significant barriers to U.S. trade. Such
measures can pose a particular problem for SMEs, which often do not have the resources to address these
problems on their own.

USTR will continue to identify, review, analyze, and address foreign government standards-related and
SPS measures that affect U.S. trade. USTR coordinates rigorous interagency processes and mechanisms,
through the Trade Policy Staff Committee and, more specifically, through specialized TBT and SPS
subcommittees. These TPSC subcommittees, which include representatives from agencies with an interest
in foreign standards-related and SPS measures, maintain an ongoing process of informal consultation and
coordination on standards-related and SPS issues as they arise.

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In recent years, the United States has observed a growing trend among our trading partners to impose
localization barriers to trade – measures designed to protect, favor, or stimulate domestic industries, service
providers, or intellectual property at the expense of imported goods, services or foreign-owned or developed
intellectual property. These measures may operate as disguised barriers to trade and unreasonably
differentiate between domestic and foreign products, services, intellectual property, or suppliers. They can
distort trade, discourage foreign direct investment and lead other trading partners to impose similarly
detrimental measures. For these reasons, it has been longstanding U.S. trade policy to advocate strongly
against localization barriers and encourage trading partners to pursue policy approaches that help their
economic growth and competitiveness without discriminating against imported goods and services. USTR
is chairing an interagency effort to address localization barriers. This year’s NTE continues the practice of
identifying localization barriers to trade in the relevant barrier category in the report’s individual sections
to assist these efforts and to inform the public on the scope and diversity of these practices.

USTR continues to vigorously scrutinize foreign labor practices and to address substandard practices that
impinge on labor obligations in U.S. free trade agreements (FTAs) and deny foreign workers their
internationally recognized labor rights. USTR has also introduced new mechanisms to enhance its
monitoring of the steps that U.S. FTA partners have taken to implement and comply with their obligations
under the environment chapters of those agreements. To further these initiatives, USTR has implemented
interagency processes for systematic information gathering and review of labor rights practices and
environmental enforcement measures in FTA countries, and USTR staff regularly works with FTA
countries to monitor practices and directly engages governments and other actors. The Administration has
reported on these activities in the 2016 Trade Policy Agenda and 2015 Annual Report of the President on
the Trade Agreements Program.

The NTE covers significant barriers, whether they are consistent or inconsistent with international trading
rules. Many barriers to U.S. exports are consistent with existing international trade agreements. Tariffs,
for example, are an accepted method of protection under the General Agreement on Tariffs and Trade 1994
(GATT 1994). Even a very high tariff does not violate international rules unless a country has made a
commitment not to exceed a specified rate, i.e., a tariff binding. On the other hand, where measures are not
consistent with U.S. rights international trade agreements, they are actionable under U.S. trade law,
including through the World Trade Organization (WTO).

This report discusses the largest export markets for the United States, including 58 countries, the European
Union, Taiwan, Hong Kong, and one regional body. The discussion of Chinese trade barriers is structured
and focused to align more closely with other Congressional reports prepared by USTR on U.S.-China trade
issues. The China section includes cross-references to other USTR reports where appropriate. As always,
the omission of particular countries and barriers does not imply that they are not of concern to the United
States.

NTE sections report the most recent data on U.S. bilateral trade in goods and services and compare the data
to the preceding period. This information is reported to provide context for the reader. The merchandise
trade data contained in the NTE are based on total U.S. exports, free alongside (f.a.s.)ii value, and general
U.S. imports, customs value, as reported by the Bureau of the Census, Department of Commerce (NOTE:
These data are ranked in an Appendix according to the size of the export market). The services data are
drawn from the October 2015 Survey of Current Business, compiled by the Bureau of Economic Analysis
in the Department of Commerce (BEA). The direct investment data are drawn from the September 2015
Survey of Current Business, also from BEA.

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TRADE IMPACT ESTIMATES AND FOREIGN BARRIERS

Wherever possible, this report presents estimates of the impact on U.S. exports of specific foreign trade
barriers and other trade distorting practices. Where consultations related to specific foreign practices were
proceeding at the time this report was published, estimates were excluded, in order to avoid prejudice to
those consultations.

The estimates included in this report constitute an attempt to assess quantitatively the potential effect of
removing certain foreign trade barriers on particular U.S. exports. However, the estimates cannot be used
to determine the total effect on U.S. exports either to the country in which a barrier has been identified or
to the world in general. In other words, the estimates contained in this report cannot be aggregated in order
to derive a total estimate of gain in U.S. exports to a given country or the world.

Trade barriers or other trade distorting practices affect U.S. exports to another country because these
measures effectively impose costs on such exports that are not imposed on goods produced in the importing
country. In theory, estimating the impact of a foreign trade measure on U.S. exports of goods requires
knowledge of the (extra) cost the measure imposes on them, as well as knowledge of market conditions in
the United States, in the country imposing the measure, and in third countries. In practice, such information
often is not available.

Where sufficient data exist, an approximate impact of tariffs on U.S. exports can be derived by obtaining
estimates of supply and demand price elasticities in the importing country and in the United States.
Typically, the U.S. share of imports is assumed to be constant. When no calculated price elasticities are
available, reasonable postulated values are used. The resulting estimate of lost U.S. exports is approximate,
depends on the assumed elasticities, and does not necessarily reflect changes in trade patterns with third
countries. Similar procedures are followed to estimate the impact of subsidies that displace U.S. exports in
third country markets.

The task of estimating the impact of nontariff measures on U.S. exports is far more difficult, since there is
no readily available estimate of the additional cost these restrictions impose. Quantitative restrictions or
import licenses limit (or discourage) imports and thus raise domestic prices, much as a tariff does. However,
without detailed information on price differences between countries and on relevant supply and demand
conditions, it is difficult to derive the estimated effects of these measures on U.S. exports. Similarly, it is
difficult to quantify the impact on U.S. exports (or commerce) of other foreign practices, such as
government procurement policies, nontransparent standards, or inadequate intellectual property rights
protection.

In some cases, particular U.S. exports are restricted by both foreign tariff and nontariff barriers. For the
reasons stated above, it may be difficult to estimate the impact of such nontariff barriers on U.S. exports.
When the value of actual U.S. exports is reduced to an unknown extent by one or more than one nontariff
measure, it then becomes derivatively difficult to estimate the effect of even the overlapping tariff barriers
on U.S. exports.

The same limitations that affect the ability to estimate the impact of foreign barriers on U.S. goods exports
apply to U.S. services exports. Furthermore, the trade data on services exports are extremely limited in
detail. For these reasons, estimates of the impact of foreign barriers on trade in services also are difficult
to compute.

With respect to investment barriers, there are no accepted techniques for estimating the impact of such
barriers on U.S. investment flows. For this reason, no such estimates are given in this report. The NTE

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includes generic government regulations and practices which are not product specific. These are among
the most difficult types of foreign practices for which to estimate trade effects.

In the context of trade actions brought under U.S. law, estimates of the impact of foreign practices on U.S.
commerce are substantially more feasible. Trade actions under U.S. law are generally product specific and
therefore more tractable for estimating trade effects. In addition, the process used when a specific trade
action is brought will frequently make available non-U.S. Government data (from U.S. companies or
foreign sources) otherwise not available in the preparation of a broad survey such as this report.

In some cases, stakeholder valuations estimating the financial effects of barriers are contained in the report.
The methods for computing these valuations are sometimes uncertain. Hence, their inclusion in the NTE
report should not be construed as a U.S. Government endorsement of the estimates they reflect.

March 2017

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Endnotes:
i. Corruption is an impediment to trade, a serious barrier to development, and a direct threat to our collective security. Corruption
takes many forms and affects trade and development in different ways. In many countries, it affects customs practices, licensing
decisions, and the awarding of government procurement contracts. If left unchecked, bribery and corruption can negate market
access gained through trade negotiations, undermine the foundations of the international trading system, and frustrate broader
reforms and economic stabilization programs. Corruption also hinders development and contributes to the cycle of poverty.

Information on specific problems associated with bribery and corruption is difficult to obtain, particularly since perpetrators go to
great lengths to conceal their activities. Nevertheless, a consistent complaint from U.S. firms is that they have experienced
situations that suggest corruption has played a role in the award of billions of dollars of foreign contracts and delayed or prevented
the efficient movement of goods. Since the United States enacted the Foreign Corrupt Practices Act (FCPA) in 1977, U.S.
companies have been prohibited from bribing foreign public officials, and numerous other domestic laws discipline corruption of
public officials at the State and Federal levels. The United States is committed to the active enforcement of the FCPA.

The United States has taken a leading role in addressing bribery and corruption in international business transactions and has made
real progress over the past quarter century building international coalitions to fight bribery and corruption. Bribery and corruption
are now being addressed in a number of fora. Some of these initiatives are now yielding positive results.

The United States led efforts to launch the Organization for Economic Cooperation and Development (OECD) Convention on
Combating Bribery of Foreign Public Officials in International Business Transactions (Anti-bribery Convention). In November
1997, the United States and 33 other nations adopted the Anti-bribery Convention, which currently is in force for 41 countries,
including the United States. The Anti-bribery Convention obligates its parties to criminalize the bribery of foreign public officials
in the conduct of international business. It is aimed at proscribing the activities of those who offer, promise, or pay a bribe (for
additional information, see http://www.export.gov/tcc and http://www.oecd.org).

The United States also played a critical role in the successful conclusion of negotiations that produced the United Nations
Convention Against Corruption, the first global anticorruption instrument. The Convention was opened for signature in December
2003, and entered into force December 14, 2005. The Convention contains many provisions on preventive measures countries can
take to stop corruption, and requires countries to adopt additional measures as may be necessary to criminalize fundamental
anticorruption offenses, including bribery of domestic as well as foreign public officials. As of December 2016, there were 181
parties, including the United States.

In March 1996, countries in the Western Hemisphere concluded negotiation of the Inter-American Convention Against Corruption
(Inter-American Convention). The Inter-American Convention, a direct result of the Summit of the Americas Plan of Action,
requires that parties criminalize bribery and corruption. The Inter-American Convention entered into force in March 1997. The
United States signed the Inter-American Convention on June 2, 1996 and deposited its instrument of ratification with the
Organization of American States (OAS) on September 29, 2000. Thirty-one of the thirty-three parties to the Inter-American
Convention, including the United States, participate in a Follow-up Mechanism conducted under the auspices of the OAS to monitor
implementation of the Convention. The Inter-American Convention addresses a broad range of corrupt acts including domestic
corruption and trans-national bribery. Signatories agree to enact legislation making it a crime for individuals to offer bribes to
public officials and for public officials to solicit and accept bribes, and to implement various preventive measures.

The United States continues to push its anticorruption agenda forward. The United States promotes transparency and reforms that
specifically address corruption of public officials. The United States led other countries in concluding multilateral negotiations on
the World Trade Organization (WTO) Trade Facilitation Agreement which contains provisions on transparency in customs
operations and avoiding conflicts of interest in customs penalties. The United States has also advocated for increased transparency
of government procurement regimes as a way to fight corruption, including in the WTO Government Procurement Agreement,
which contains a requirement for participating governments and their relevant procuring entities to avoid conflicts of interest and
prevent corrupt practices. The United States is also playing a leadership role on these issues in APEC and other fora.

ii. Free alongside (f.a.s.): Under this term, the seller quotes a price, including delivery of the goods alongside and within the reach
of the loading tackle (hoist) of the vessel bound overseas.

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ALGERIA
TRADE SUMMARY

The U.S. goods trade deficit with Algeria was $992 million in 2016, a 33.7 percent decrease ($504 million)
over 2015. U.S. goods exports to Algeria were $2.2 billion, up 19.3 percent ($361 million) from the
previous year. Corresponding U.S. imports from Algeria were $3.2 billion, down 4.2 percent. Algeria was
the United States' 54th largest goods export market in 2016.

U.S. foreign direct investment (FDI) in Algeria (stock) was $4.8 billion in 2015 (latest data available), a
3.2 percent decrease from 2014.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Vehicles

In March 2015, the Algerian government enacted various new requirements for imported vehicles, with a
focus on passenger automobiles. Algerian officials assert that these new requirements apply to all vehicles,
but it appears the enforcement of these requirements has focused on imported vehicles. Exporters face
particular challenges because the safety requirements are vague, appearing to be based loosely on United
Nations Economic Commission for Europe (UNECE) vehicle standards, thus complicating efforts to
comply. Moreover, it appears many of the requirements address the particular design features of
components rather than their actual performance with respect to safety. Some requirements are unique to
Algeria. For example, industry representatives have referenced the requirement for rear-seat knee airbags
and seatbelt minders for all seats in commercial vehicles. Algeria also has not clarified whether vehicles
that conform to U.S. Federal Motor Vehicle Safety Standards meet its requirements.

All vehicles entering Algeria must be accompanied by a “certificate of conformity” before they are
inspected by a representative of the Ministry of Industry and Mines. Algeria also requires this certificate
in order for companies to obtain the letter of credit necessary to finance the import of a vehicle. Insufficient
prior notice of these various new requirements led to thousands of cars being held on arrival or at the port
of origin in 2015 because of non-compliance, including approximately 400 vehicles from one U.S.
manufacturer, which were eventually grandfathered under the previous standards. The standards otherwise
remain in effect for all imported vehicles, which has forced carmakers to make unique and costly
adjustments to models sold in the Algerian market.

At a March 2016 Trade and Investment Framework Agreement (TIFA) Council meeting with Algerian
officials, the United States highlighted the negative impact of these new requirements on United States-
Algeria economic relations, given the lack of prior consultation with industry as well as the insufficient
time for implementation.

Food Products

Algeria requires imported food products to have at least 80 percent of their shelf life remaining at the
time of importation.

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Sanitary and Phytosanitary Barriers

The Algerian government currently bans the importation, distribution, or sale of seeds that are the products
of biotechnology. There is an exception for biotechnology seeds imported for research purposes.

Algeria generally declines to issue certificates to permit the importation of beef and poultry from the United
States, although it did grant a one-time import certificate for beef to be used in a U.S. Government export
promotion event in 2016. There are no regulations prohibiting the importation of U.S. beef into Algeria,
but the government of Algeria has expressed concerns about the widespread use of growth hormones in the
United States. A certificate is being negotiated between U.S. and Algerian veterinary authorities to allow
the importation into Algeria of U.S. breeding cattle.

IMPORT POLICIES

Tariffs

Algeria is not a WTO member and thus does not bind any of its tariffs through the WTO Agreement. Tariffs
on imported goods range from zero to 70 percent. Nearly all finished manufactured products entering
Algeria are subject to a 30 percent tariff, with some limited categories subject to a 15 percent rate. Goods
facing the highest rates are those that have direct equivalents produced in Algeria, including some
pharmaceuticals. The few items that are duty-free are generally intermediate goods from the European
Union (EU), which are used in manufacturing and covered by the EU-Algeria Association Agreement that
entered into force in 2005.

In addition, most imported goods are subject to the 17 percent value-added tax (VAT). An additional 0.3
percent tax is levied on a good if the applicable customs duty exceeds 20,000 Algerian dinars (about $180).
Algeria is expected to adopt a law in early 2017 that would increase the top band of the VAT to 19 percent.

Customs Procedures

Clearing goods through Algerian customs is the most frequently reported problem facing foreign companies
operating in Algeria. Delays can reportedly take weeks or months, and in many cases, there is no official
explanation. In addition to a certificate of origin, the Algerian government requires all importers to provide
certificates of conformity and quality from an independent third party. Customs requires shipping
documents to be stamped with a “Visa Fraud” note from the Ministry of Commerce, indicating that the
goods have successfully passed a fraud inspection, before the goods are cleared. Authorizations from other
ministries are also frequently required, causing additional bureaucratic delays, especially when the
regulations do not clearly specify which ministry’s authority is being exercised.

Storage fees at Algerian ports of entry are high, and the fee rates double when goods are stored for longer
than 10 days. Firms report that bribery is used widely to secure the release of shipments, and both U.S. and
non-U.S. company representatives claim that shipments are sometimes deliberately held at port to facilitate
bribes to customs officials.

Import Restrictions

Pharmaceuticals and Medical Devices

Since 2010, Algeria’s Ministry of Health has issued regulations, pursuant to a 1985 law, to ban imports of a
number of pharmaceutical products, medical devices, and other medical goods. At the end of 2016, an
estimated 460 products had been banned, an increase from the previous year. Algeria has also set import

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quotas for drugs for which an equivalent is produced domestically. Imports of a drug are prohibited if at
least three domestic producers make an equivalent. The Ministry of Health has been applying these policies
despite the inability of local production to meet demand for dozens of affected medications.

Import Licenses and Quotas

Based on new authority in the 2016 Finance Law, the Ministry of Commerce now requires licenses for the
import of goods in the following “strategic” sectors: steel and metallurgy; hydraulic bindings; electrical
appliances; industrial chemistry; automobiles; pharmaceuticals; aeronautics; shipbuilding and repair;
advanced technologies; agribusiness; textiles, garments, leather, and derivatives; and lumber and furniture.
Other products under consideration for such license requirements include wood, ceramics, iron, raisins,
garlic, potato chips, and some confectionary products. For imported goods not subject to quantitative limits,
the licensing is automatic, but for items subject to annual quotas – like automobiles, cement, and steel
reinforcing rods (rebar) – it constitutes a significant barrier to trade.

Vehicles

On May 8, 2016, the Ministry of Commerce issued licenses allowing the import of just 83,000 vehicles
over the next six months. All automobile imports had previously been blocked, including vehicles that had
been ordered and paid for before the imposition of the license requirement. All vehicles that had not arrived
in Algerian ports before November 8, 2016 were blocked from entering for the rest of the year. Distributors
of U.S. automobile companies imported approximately 30,000 vehicles in 2014, but were able to import
less than 3,000 in 2016. The estimated gain in trade if this barrier were removed would be more than $500
million per year.

The U.S. Government wrote to the Algerian Minister of Commerce in May 2016 outlining the detrimental
effects on bilateral trade and investment that these quotas had caused.

According to industry sources, the Ministry has indicated that automobile imports will be further reduced
to 55,000 for 2017, with the issuance of 2017 licenses to distributors based on 2016 market share and a
willingness to establishing manufacturing in Algeria. Distributors who did not file plans to build an
automobile assembly plant in Algeria with the Ministry of Industry and Mines by December 31, 2016, will
reportedly not be granted a license to import vehicles in 2017.

Imports of used vehicles and construction equipment have been banned since 2007.

Other Product Bans

Imports of all types of used machinery are prohibited. All products containing pork or pork derivatives are
also prohibited.

GOVERNMENT PROCUREMENT

Under the 2016 Finance Law, all ministries and state-owned enterprises (SOEs) are required to purchase
domestically manufactured products whenever available. The procurement of foreign goods is permitted
only with special authorization at the minister level and if a locally made product cannot be identified.
Algeria is neither a party nor an observer to the WTO Government Procurement Agreement.

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INTELLECTUAL PROPERTY RIGHTS PROTECTION

Algeria remains on the Priority Watch List in the 2016 Special 301 Report. The United States commends
Algeria for its ongoing effort to promote awareness of the importance of intellectual property rights (IPR).
However, Algeria continues to inadequately enforce IPR, including patent and trademark protection.
Though the production of counterfeit goods has been nearly eradicated, the importation of counterfeit goods
has increased dramatically, as has the use of unlicensed software. An estimated 85 percent or more of
software in the country is pirated. Further, Algeria has failed to enact an effective system of protection
against unfair commercial use and unauthorized disclosure of data generated by pharmaceutical companies
to obtain marketing approval for their products. U.S. companies have reported unlicensed production of
their brand-name drugs in the Algerian market.

SERVICES BARRIERS

Banking

Since 2010, Algeria has restricted banks controlled by foreign shareholders from making loans to Algerian
subsidiaries.

Direct wire payments for imported goods are not permitted. Instead, all importers must secure letters of
credit covering at least the full cost of the imported goods for any shipments totaling at least 4 million
Algerian dinars (approximately $36,300), and the validity of the letters of credit is limited to 60 days.

The government tightly controls foreign exchange for Algerian firms. Algerian companies in the
hydrocarbons sector must receive 100 percent of export revenue in local currency, while other Algerian
companies can receive up to 50 percent of their export earnings in U.S. dollars.

With few exceptions, the Algerian government prohibits Algerian citizens from holding financial assets
abroad. The government permits Algerians to obtain foreign currency for the importation of goods only if
they have in local currency the equivalent of the hard currency cost of the imports.

Electronic Payment Services

Electronic payment services are limited in Algeria due to weak consumer credit culture and to
underdeveloped telecommunications infrastructure needed to support electronic banking. The government
banned consumer credit from 2009 to 2014, and consumer loans are almost entirely restricted to the
purchase of domestically-produced goods. Credit cards are rare, and those that exist are primarily local-
use cards, known as cartes interbancaire (CIBs), issued by local banks. Internationally recognized cards
such as MasterCard and Visa have been authorized for use within Algeria, but local banks generally only
issue the cards as prepaid debit cards to customers intending to use them on trips abroad.

INVESTMENT BARRIERS

Algeria’s investment law requires Algerian ownership of at least 51 percent in all projects involving foreign
investments. This requirement originated as part of the 2006 law governing hydrocarbons, but was
expanded in the 2009 supplementary budget law to cover all foreign investments.

A new investment law passed in June 2016 states that the Algerian government will “accompany” all
foreign investments during the establishment phase. Prospective investors must work with the relevant
ministry or ministries to negotiate, register, and set up their businesses. U.S. businesses have commented
that the process is subject to political influence, and that companies not given an informal “green light” by

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the relevant ministry may not be able to establish their company in Algeria. The lack of transparency behind
the decision-making process makes it difficult to determine the reasons for any delays.

Algeria is working to develop a legal framework to facilitate franchising. Because franchise royalties may
not be repatriated, it is difficult for foreign franchises to operate in Algeria.

Algerian bureaucratic requirements cause significant delays and deter many companies from attempting to
enter the market. Several U.S. companies, particularly in the pharmaceutical sector, have reported
difficulties in renewing their operating and market access licenses with the relevant ministries. Without a
valid license, the process for obtaining import authorization is slow.

BARRIERS TO DIGITAL TRADE

Under current law, Algerian citizens may not purchase goods online from abroad. Businesses, however,
may purchase items online and import them for business-related uses.

OTHER BARRIERS

State-Owned Enterprises

State-owned enterprises (SOEs) comprise about two-thirds of the Algerian economy. The national oil and
gas company Sonatrach is the most prominent SOE, but SOEs are present in all sectors. Algeria previously
gave equal opportunity to foreign and local companies competing for government contracts, but in the last
few years the government has favored SOEs and other Algerian companies.

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ANGOLA
TRADE SUMMARY

The U.S. goods trade deficit with Angola was $1.6 billion in 2016, a 3.6 percent decrease ($60 million)
over 2015. U.S. goods exports to Angola were $1.3 billion, up 9.4 percent ($110 million) from the previous
year. Corresponding U.S. imports from Angola were $2.9 billion, up 1.8 percent. Angola was the United
States' 69th largest goods export market in 2016.

U.S. foreign direct investment in Angola (stock) was $24 million in 2015 (latest data available), a 98.7
percent decrease from 2014.

IMPORT POLICIES

Tariffs and Nontariff Measures

Angola is a member of the World Trade Organization (WTO) and the Southern African Development
Community (SADC). However, Angola has delayed implementation of the 2003 SADC Protocol on Trade,
which seeks to reduce tariffs. The Angolan government is concerned that implementation of the SADC
Protocol on Trade would lead to a large increase in imports, particularly from South Africa. Angola plans
to introduce a new harmonized tariff schedule in 2017. The Angolan government has stated that the new
tariff regime will greatly facilitate trade and decrease costs, but it has not announced details.

Customs Barriers

Administration of Angola’s customs service has improved in the last few years, but remains a barrier to
market access. Under Presidential Decree No. 63/13, pre-shipment inspection is no longer mandatory for
goods shipped after June 12, 2013. However, traders may continue to contract for pre-shipment inspection
services from private inspection agencies if they wish to benefit from faster “green channel” access, or if
pre-shipment inspection is required by their letter of credit agreement. Some importers find that the fees
charged by Bromangol, a private laboratory that dominates the inspection market, are excessive.

Any shipment of goods equal to or exceeding $1,000 requires use of a clearing agent. The number of
clearing agents increased from 55 in 2006 to 232 in 2015. However, competition among clearing agents
and reduced importing activity have not reduced fees for such agents, which typically range from one to
two percent of the import value of the declaration.

The importation of certain goods may require specific authorization from various government ministries,
which can result in delays and extra costs. Goods that require ministerial authorization include:
pharmaceutical substances and saccharine and derived products (Ministry of Health); fiscal or postal
stamps, radios, transmitters, receivers, and other devices (Ministry of Post and Telecommunications);
weapons, ammunition, fireworks, and explosives (Ministry of Interior); plants, roots, bulbs, microbial
cultures, buds, fruits, seeds, and crates and other packages containing these products (Ministry of
Agriculture); poisonous and toxic substances and drugs (Ministries of Agriculture, Industry, and Health);
and of other goods imported to be given away as samples (Ministry of Customs). The import of goods such
as poultry has also been hindered at times through the use of restrictive import licensing rules.

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GOVERNMENT PROCUREMENT

Angola’s government procurement process lacks transparency and fails to promote competition among
suppliers. Information about government projects and procurements is often not readily available from the
appropriate authorities. Although calls for bids for government procurements are sometimes published in
the government newspaper, Jornal de Angola, many contracting agencies already form a preference for a
specific business before receiving all the bids.

The Promotion of the Angolan Private Entrepreneurs Law provides Angolan companies preferential
treatment in the government’s procurement of goods, services, and public works contracts. Lacking the
capacity to perform the contracts themselves, Angolan companies often deliver these goods and services
by subcontracting with foreign companies.

A new Public Procurement law entered into force on September 16, 2016 (Law National Assembly Law
No. 9/16, of 16 June 2016), encompassing both public procurement and rules on the performance of some
contracts. This law represents an effort to reform and modernize Angola’s procurement regime, and is a
condition of an ongoing African Development Bank loan to support the reform of the electric power sector
in Angola.

Angola is not a signatory to the WTO Agreement on Government Procurement.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Angola was not listed on the 2016 Special 301 Report. Intellectual property rights (IPR) are administered
by the Ministry of Industry (trademarks, patents, and designs) and by the Ministry of Culture (authorship,
literary, and artistic rights). Angola is a party to the World Intellectual Property Organization (WIPO)
Convention, the Paris Convention for the Protection of Industrial Property, and the WIPO Patent
Cooperation Treaty. Although Angolan law provides basic IPR protection and the National Assembly
continues to work to strengthen existing legislation, IPR protection remains weak due to lack of
enforcement.

INVESTMENT BARRIERS

Angola can be a difficult environment for foreign investors. Oil revenues contribute 75 percent of
government revenues and are the dominant source of foreign exchange deposits for the Central Bank.
Starting in late 2014, as a direct result of the further decline in oil prices, foreign exchange deposits
diminished. To manage the depleting reserves, in 2016 the Central Bank of Angola implemented a process
that severely limited foreign exchange approvals for private citizens and businesses. American and non-
American businesses alike, report facing significant impediments when seeking approvals to repatriate
profits and make outward remittances in foreign currency. Local importers whom deposit foreign currency
are often unable to withdraw their deposits without authorization from the Central Bank. The process
implemented in 2016 prioritizes the authorization for foreign exchange for imports for the energy sector,
food, and medicine.

American and foreign companies report significant impediments to repatriating profits out of Angola.
Central Bank approvals for remittance and royalties are subject to particularly severe delays. Corporations
report that, following direct appeals to the Central Bank, they are able to access foreign exchange to remit
only very small portions of their local currency accounts.

On August 26, 2015, the Angolan government enacted a new private investment law that stripped the
National Agency for Private Investment (ANIP) of its authority with respect to attracting, facilitating, and

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approving investments. The law assigned responsibility for overseeing new investments across various
ministries. ANIP was folded into a new entity, the Angolan Investment and Export Promotion Agency.
The new private investment law maintains the existing requirement that a $1 million investment is required
of foreign investors to be eligible for fiscal incentives from the government. The threshold for eligibility
for these incentives for Angolan investors is lowered to $500,000. The law also requires at least a 35
percent local participation in foreign investments in the following strategic sectors: electricity, water,
tourism, hospitality, transportation, logistics, telecommunications, information technology, construction,
and media. The previous law required local partnerships in only the energy, banking, and insurance sectors.

The new private investment law will not apply to existing investments (pre-September 2015), which will
continue to be governed by the old legal framework. Investments in Angola’s mining, finance, and
petroleum sectors are not affected by the new law, as they continue to be governed by sector-specific
legislation. The investment law expressly prohibits private investment in strategic areas such as defense
and national security; banking activities relating to the operations of the Central Bank of Angola and the
Mint; the administration of ports and airports; and other areas where the law gives the state exclusive
responsibility. Under the new law, foreign investors pay higher taxes on dividends and profit repatriation.
The new tax rate starts at 15 percent and rises to as much as 50 percent, depending on the date and amount
of repatriation.

By law, the Council of Ministers has 30 days to review a foreign investment application, although in
practice decisions are often subject to lengthy delays. Obtaining the proper permits and business licenses
to operate in Angola is time consuming, and adds to the cost of investment. The World Bank’s “Doing
Business in 2017” report, ranking Angola 182 out of 190 countries, noted that it takes an average of 66 days
to start a business in Angola compared to a regional average of 29.7 days.

The Angolan justice system can be slow and arduous. The World Bank’s “Doing Business in 2017” report
estimates that enforcing contracts (measured by the amount of time elapsed between the filing of a
complaint and the receipt of restitution) generally takes 1,296 days in Angola, whereas the average period
in sub-Saharan Africa is 650 days. While existing law contemplates domestic and international arbitration,
arbitration law is not widely practiced in the country.

The Angolan government is gradually implementing legislation for the petroleum sector, enacted in
November 2003, which requires many foreign oil services companies to form joint venture partnerships
with local companies. With respect to the provision of goods and services not requiring heavy capital
investment or specialized expertise, foreign companies may only participate as a contractor or sell
manufactured products to Angolan companies for resale. Foreign petroleum companies face local content
requirements forcing them to acquire low capital investment goods and services from Angolan-owned
companies. For activities requiring a medium level of capital investment and a higher level of expertise
(not necessarily specialized), foreign companies may only participate in association with Angolan
companies. The Foreign Exchange Law for the Petroleum Sector requires that all petroleum, oil, and gas
companies use Angola-domiciled banks to make all payments, including payments to suppliers and
contractors located outside of Angola. Furthermore, payments for goods and services provided by resident
service providers must be made in local currency.

OTHER BARRIERS

Corruption

Corruption is prevalent in Angola for many reasons including but not limited to, an inadequately trained
civil service, a highly centralized bureaucracy, antiquated regulations, and a lack of implementation of
anticorruption laws. “Gratuities” and other facilitation fees are sometimes requested to secure quicker

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service and approval. It is common for Angolan government officials to have substantial private business
interests that are not necessarily publicly disclosed. Likewise, it is difficult to determine the ownership of
some Angolan companies. The business climate continues to favor those connected to the government.
Laws and regulations regarding conflict of interest are not widely enforced. Some investors report pressure
to form joint ventures with specific Angolan companies believed to have connections to political figures.

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ARAB LEAGUE
The effect of the Arab League’s boycott of Israeli companies and Israeli-made goods on U.S. trade and
investment in the Middle East and North Africa varies from country to country. While the boycott still on
occasion can pose a barrier (because of associated compliance costs and potential legal restrictions) for
individual U.S. companies and their subsidiaries doing business in certain parts of the region, it has for
many years had an extremely limited practical effect overall on U.S. trade and investment ties with many
key Arab League countries. The 22 Arab League members are the Palestinian Authority and the following
countries: Algeria, Bahrain, Comoros, Djibouti, Egypt, Iraq, Kuwait, Jordan, Lebanon, Libya, Mauritania,
Morocco, Oman, Qatar, Saudi Arabia, Somalia, Sudan, Syria, Tunisia, Yemen, and the United Arab
Emirates. About half of the Arab League members are also Members of the World Trade Organization
(WTO) and are thus obligated to apply WTO commitments to all current WTO Members, including Israel.
To date, no Arab League member, upon joining the WTO, has invoked the right of non-application of WTO
rights and obligations with respect to Israel.

The United States has long opposed the Arab League boycott, and U.S. Government officials from a variety
of agencies frequently have urged Arab League member governments to end it. The U.S. Department of
State and U.S. embassies in relevant Arab League host capitals take the lead in raising U.S. concerns related
to the boycott with political leaders and other officials. The U.S. Departments of Commerce and Treasury,
and the Office of the United States Trade Representative monitor boycott policies and practices of Arab
League members and, aided by U.S. embassies, lend advocacy support to firms facing boycott-related
pressures.

U.S. antiboycott laws (the 1976 Tax Reform Act (TRA) and the 1977 amendments to the Export
Administration Act (EAA)) were adopted to require U.S. firms to refuse to participate in foreign boycotts
that the United States does not sanction. The Arab League boycott of Israel was the impetus for this
legislation and continues to be the principal boycott with which U.S. companies must be concerned. The
EAA’s antiboycott provisions, implementation of which is overseen by the U.S. Department of
Commerce’s Office of Antiboycott Compliance (OAC), prohibit certain types of conduct undertaken in
support of the Arab League boycott of Israel. These types of prohibited activity include, inter alia,
agreements by companies to refuse to do business with Israel, furnishing by companies of information about
business relationships with Israel, and implementation of letters of credit that include prohibited boycott
terms. The TRA’s antiboycott provisions, administered by the Department of the Treasury and the Internal
Revenue Service, deny certain foreign tax benefits to companies that agree to requests from boycotting
countries to participate in certain types of boycotts.

The U.S. Government’s efforts to oppose the Arab League boycott include alerting appropriate officials to
the presence of prohibited boycott requests and those requests’ adverse impact on both U.S. firms and on
Arab League members’ ability to expand trade and investment ties with the United States. In this regard,
U.S. Department of Commerce/OAC officials periodically visit Arab League members to consult with
appropriate counterparts on antiboycott compliance issues. These consultations provide technical
assistance to those counterparts to identify language in commercial documents with which U.S. businesses
may or may not comply.

Boycott activity can be classified according to three categories. The primary boycott prohibits the
importation of goods and services from Israel into the territory of Arab League members. This prohibition
may conflict with the obligation of Arab League members that are also Members of the WTO to treat
products of Israel on a most favored nation basis. The secondary boycott prohibits individuals, companies
(both private and public sector), and organizations in Arab League members from engaging in business
with U.S. firms and firms from other countries that contribute to Israel’s military or economic development.

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Such firms may be placed on a blacklist maintained by the Central Boycott Office (CBO), a specialized
bureau of the Arab League; the CBO often provides this list to other Arab League member governments,
which decide whether or to what extent to follow it in implementing any national boycotts. The tertiary
boycott prohibits business dealings with U.S. and other firms that do business with blacklisted companies.

Individual Arab League member governments are responsible for enforcing the boycott, and enforcement
efforts vary widely among them. Some Arab League member governments have consistently maintained
that only the Arab League as a whole can entirely revoke the boycott. Other member governments support
the view that adherence to the boycott is a matter of national discretion; thus, a number of governments
have taken steps to dismantle various aspects of their national boycotts. The U.S. Government has on
numerous occasions indicated to Arab League member governments that their officials’ attendance at
periodic CBO meetings is not conducive to improving trade and investment ties, either with the United
States or within the region. Attendance of Arab League member government officials at CBO meetings
varies; a number of governments have responded to U.S. officials that they only send representatives to
CBO meetings in an observer capacity, or to push for additional discretion in national enforcement of the
CBO-drafted company blacklist. Ongoing political upheaval in Syria since 2011 has prevented the CBO
from convening meetings on a regular basis.

The current situation in individual Arab League members is as follows:

EGYPT: Egypt has not enforced any aspect of the boycott since 1980, pursuant to its peace treaty with
Israel. However, U.S. firms occasionally have found that some government agencies use outdated forms
containing boycott language. In past years, Egypt has included boycott language drafted by the Arab
League in documentation related to tenders funded by the Arab League. The revolution and resultant
political uncertainty in Egypt since early 2011 introduced some uncertainty with respect to future Egyptian
approaches to boycott-related issues, but thus far the Egyptian government has affirmed its continued
commitment to the peace treaty.

JORDAN: Jordan formally ended its enforcement of any aspect of the boycott when it signed the
Jordanian-Israeli peace treaty in 1994. Jordan signed a trade agreement with Israel in 1995, and later an
expanded trade agreement in 2004. While some elements of Jordanian society continue to oppose
improving political and commercial ties with Israel as a matter of principle, government policy has sought
to enhance bilateral commercial ties.

LIBYA: Prior to its 2011 revolution, Libya did not maintain diplomatic relations with Israel and had a law
in place mandating application of the Arab League boycott. The Qaddafi regime enforced the boycott and
routinely inserted boycott language in contracts with foreign companies and maintained other restrictions
on trade with Israel. Ongoing political upheaval in Libya since 2011 has made it impossible to determine
the current attitude of Libyan authorities toward boycott issues. The Administration will continue to
monitor closely Libya’s treatment of the boycott.

IRAQ: U.S. companies and investors consider the existence of boycott-related requirements in
procurement contracts and tenders issued by the government of Iraq as significant disincentives for doing
business in the country. It is estimated that since 2010, U.S. companies have lost more than $1 billion in
sales opportunities in Iraq due to Arab League boycott-related requests.

Despite antiboycott guidance given on two occasions from the Iraqi Council of Ministers to all ministries,
the number of boycott-related requests from Iraqi entities increased from 2009 to 2014. In 2016, there were
52 prohibited requests (as defined by U.S. antiboycott laws) from Iraqi entities reported to the U.S.
Department of Commerce, down from 62 in 2015. Requests emanated from several Iraqi government
entities, including the Ministry of Health (MOH) and its procurement arm, the Iraqi State Company for

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Importation of Drugs and Medical Appliances (Kimadia), the Ministry of Planning, and the South Oil
Company.

The MOH committed to the United States in June 2013 that it would stop issuing boycott-related requests.
Since that time, however, the MOH has issued several boycott-related requests that negatively affected U.S.
suppliers of medical and pharmaceutical products. In January 2014, the head of Kimadia informed the
United States that the MOH and Kimadia would move to end the practice of including Arab League boycott-
related requirements in tender packages for new procurements. The South Oil Company, which had stopped
issuing tenders with boycott language several years ago, recently resumed issuing tenders containing
boycott-related language.

YEMEN: Yemen has not put a law in place regarding the boycott, though it continues to enforce the
primary aspect of the boycott and does not trade with Israel. Yemen in the past has stated that, absent an
Arab League consensus to end the boycott, it will continue to enforce the primary boycott, though it pledged
to adhere to its 1995 governmental decision to renounce observance of the secondary and tertiary aspects
of the boycott. Continuing serious political unrest within the country and resultant deterioration in the
government’s ability to implement policies make it difficult to predict Yemen’s future posture toward
boycott-related issues.

LEBANON: Since June 1955, Lebanese law has prohibited all individuals, companies, and organizations
from directly or indirectly contracting with Israeli companies and individuals, or buying, selling, or
acquiring in any way products produced in Israel. This prohibition is by all accounts widely adhered to in
Lebanon. Ministry of Economy officials have reaffirmed the importance of the boycott in preventing Israeli
economic penetration of Lebanese markets.

PALESTINIAN AUTHORITY: All foreign trade involving Palestinian producers and importers must be
managed through Israeli authorities. The Palestinian Authority (PA) agreed not to enforce the boycott in a
1995 letter to the U.S. Government and the PA has kept to this commitment since. Various groups
advocating for Palestinian interests continue to call for boycotts and other actions aimed at restricting trade
in goods produced in Israeli West Bank settlements.

ALGERIA: Algeria does not maintain diplomatic, cultural, or direct trade relations with Israel, though
indirect trade reportedly does take place. The country has legislation in place that in general supports the
Arab League boycott, but domestic law contains no specific provisions relating to the boycott and
government enforcement of the primary aspect of the boycott is reportedly sporadic. Algeria appears not
to enforce any element of the secondary or tertiary aspects of the boycott.

MOROCCO: Moroccan law contains no specific references to the Arab League boycott. The government
informally recognizes the primary aspect of the boycott due to Morocco’s membership in the Arab League,
but does not enforce any aspect of it. According to previously published Israeli statistics, Morocco in recent
years has been Israel’s seventh largest trading partner in Africa and third largest in the Arab world, after
Jordan and Egypt. U.S. firms have not reported boycott-related obstacles to doing business in Morocco.
Moroccan officials do not appear to attend CBO meetings.

TUNISIA: Upon the establishment of limited diplomatic relations with Israel, Tunisia terminated its
observance of the Arab League boycott. In the wake of the 2011 Tunisian revolution, there has been no
indication that Tunisian government policy with respect to the boycott has changed.

SUDAN: The government of Sudan supports the Arab League boycott and has enacted legislation requiring
adherence to it. However, there appear to be no regulations in place to enforce the secondary and tertiary
aspects of the boycott.

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COMOROS, DJIBOUTI, AND SOMALIA: None of these countries has officially participated in the
Arab League boycott. Djibouti generally supports Palestinian causes in international organizations and
there is little direct trade between Djibouti and Israel. However, the government currently does not enforce
any aspects of the boycott.

SYRIA: Syria, traditionally, was diligent in implementing laws to enforce the Arab League boycott,
maintaining its own boycott-related blacklist of firms, separate from the CBO list. Syria’s boycott practices
have not had a substantive impact on U.S. businesses due to U.S. economic sanctions imposed on the
country since 2004. The ongoing and serious political unrest within the country since 2011 has further
reduced U.S. commercial interaction with Syria.

MAURITANIA: Though Mauritania “froze” its diplomatic relations with Israel in March 2009 in response
to Israeli military engagement in Gaza, Mauritania has continued to refrain from enforcing any aspect of
the boycott.

GULF COOPERATION COUNCIL (GCC): In September 1994, the GCC member countries (Bahrain,
Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) announced an end to their enforcement
of the secondary and tertiary aspects of the boycott, eliminating a significant trade barrier to U.S. firms. In
December 1996, the GCC countries recognized the total dismantling of the boycott as a necessary step to
advance peace and promote regional cooperation in the Middle East and North Africa. Although all GCC
states are complying with these stated plans, some commercial documentation containing boycott-related
language continues to surface on occasion and impact individual business transactions.

The situation in individual GCC member countries is as follows:

Bahrain: The U.S. Government has received assurances from the government of Bahrain that it has no
restrictions on U.S. companies trading with Israel or doing business in Israel, regardless of their ownership
or other relations with Israeli companies. Bahrain abolished its boycott law and enforcement office in
September 2005 while preparing to sign its Free Trade Agreement with the United States. Tender
documents from Bahrain have occasionally referred to the secondary and tertiary aspects of the boycott,
but such instances have been remedied when brought to authorities’ attention. The government has stated
publicly that it recognizes the need to abandon formally the primary aspect of the boycott. There are no
laws prohibiting bilateral trade and investment between Bahrain and Israel. No entities exist in Bahrain
that promote trade with Israel; however, Israeli-labeled products reportedly can occasionally be found in
Bahraini markets.

Kuwait: Kuwait continues to recognize the 1994 GCC decision and has not applied secondary or tertiary
aspects of the boycott since 1991. Kuwait claims to have eliminated all direct references to the boycott in
procurement documentation as of 2000. Kuwait has a three person boycott office, which is part of the
General Administration for Customs. Although Kuwaiti officials reportedly regularly attend Arab League
boycott meetings, it is unclear whether they are active participants.

Oman: Oman does not apply any aspect of the boycott and has no laws providing for boycott enforcement.
Although boycott-related language occasionally appears in tender documents, Omani officials are
committed to ensure that such language is not included in new tender documents and have removed boycott-
related language when brought to their attention. Omani customs processes Israeli-origin shipments
entering with Israeli customs documentation, although Omani firms typically avoid marketing any
identifiably Israeli consumer products. Telecommunications and mail flow normally between the two
countries. Omani diplomatic missions are prohibited from taking part in Arab League boycott meetings.

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Qatar: Qatar has a boycott law but the extent to which the government enforces it is unclear. Although
Qatar renounced implementation of the boycott of U.S. firms that do business in Israel (the secondary and
tertiary boycott) in 1994, U.S. firms and their subsidiaries continue to report receiving boycott-related
requests from public Qatari companies; in those instances, companies have made an effort to substitute
alternative language. An Israeli trade office opened in Qatar in May 1996, but Qatar ordered that office
closed in January 2009 in protest against the Israeli military action in Gaza. Despite this closure, Qatar
continues to allow trade with Israel and allows Israelis to visit the country. Official data from the Qatari
government indicated that there was approximately $3 million in trade between Qatar and Israel in 2009.
Actual trade, including Israeli exports of agricultural and other goods shipped via third countries, is likely
higher than the official figures. Qatar permits the entry of Israeli business travelers who obtain a visa in
advance. The chief executive of Qatar’s successful 2022 World Cup bid indicated that Israeli citizens
would be welcome to attend the World Cup.

Saudi Arabia: Saudi Arabia, in accordance with the 1994 GCC decision, modified its 1962 law, resulting
in the termination of the secondary and tertiary boycott. Senior Saudi government officials from relevant
ministries have requested that U.S. officials keep them informed of any allegations that Saudi entities are
seeking to enforce these aspects of the boycott. Saudi companies have usually been willing to void or revise
boycott-related language in commercial documents when they are notified of its use.

The United Arab Emirates (UAE): The UAE complies with the 1994 GCC decision and does not implement
the secondary and tertiary aspects of the boycott. The UAE has not renounced the primary aspect of the
boycott, but the degree to which it is enforced is unclear. Nevertheless, multiple boycott-related requests
continue to emanate from Emirati entities. The United States has had some success in working with the
UAE to resolve specific boycott-related cases. The U.S. Department of Commerce/OAC and Emirati
Ministry of Economy officials have held periodic meetings aimed at encouraging the removal of boycott-
related terms and conditions from commercial documents. The Emirati government has taken a number of
steps to eliminate prohibited boycott requests, including the issuance of a series of circulars to public and
private companies explaining that enforcement of the secondary and tertiary aspects of the boycott is a
violation of Emirati policy.

Non-Arab League Countries

In recent years, press reports have occasionally surfaced regarding the implementation of officially
sanctioned boycotts of trade with Israel by governments of non-Arab League countries, particularly some
member states of the 57 member Organization of the Islamic Conference (OIC), headquartered in Saudi
Arabia (Arab League and OIC membership overlaps to a degree, though OIC members are geographically
and culturally much more diverse). Information gathered by U.S. embassies in various non-Arab League
OIC member states does not paint a clear picture of whether the OIC enforces its own boycott of Israel (as
opposed perhaps to simply lending support to Arab League positions). The degree to which non-Arab
League OIC member states enforce any aspect of a boycott against Israel also appears to vary widely.
Bangladesh, for example, does impose a primary boycott on trade with Israel. By contrast, OIC members
Tajikistan, Turkmenistan, and Kazakhstan impose no boycotts on trade with Israel and in some cases have
actively encouraged such trade, while Turkey has an active history of trade with Israel

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ARGENTINA
TRADE SUMMARY

The U.S. goods trade surplus with Argentina was $3.9 billion in 2016, a 27.3 percent decrease ($1.5 billion)
over 2015. U.S. goods exports to Argentina were $8.6 billion, down 8.3 percent ($772 million) from the
previous year. Corresponding U.S. imports from Argentina were $4.7 billion, up 18 percent. Argentina
was the United States' 30th largest goods export market in 2016.

U.S. exports of services to Argentina were an estimated $8.1 billion in 2015 (latest data available) and U.S.
imports were $2.1 billion. Sales of services in Argentina by majority U.S.-owned affiliates were $9.4 billion
in 2014 (latest data available).

U.S. foreign direct investment (FDI) in Argentina (stock) was $13.3 billion in 2015 (latest data available),
a 1.7 percent increase from 2014. U.S. direct investment in Argentina is led by manufacturing, information,
and wholesale trade.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Conformity Assessment and Safety Certificate Requirements for Electrical Products

Since 2013, Argentina has maintained conformity assessment requirements that obligate foreign
manufacturers and importers to obtain safety certifications from Argentine certification bodies for all
imported electrical and electronic products before they can enter commerce in Argentina. These repetitive
testing requirements are applicable only to foreign manufacturers, and they impose significant delays and
increase costs.

Additionally, pursuant to Resolution 508/2016, which was issued in October 2015 and modified in July
2016 by Resolution 171/2016, importers of low-voltage electrical equipment have since November 2015
been required to obtain safety certificates for their imports. The resolutions establish the Argentine Gas
Institute as the authority for granting the safety certificates. Dispositions 578 through 586, issued in January
2017, authorize the acceptance of international certification results for some electronic products, alleviating
the testing requirements for certain products. However, U.S. companies report that they continue to face
bureaucratic delays in obtaining safety certificates, which increases administrative costs.

Sanitary and Phytosanitary Barriers

Food Safety and Animal Health

Live Cattle, Beef, and Beef Products

Argentina banned imports of all U.S. live cattle, beef, and beef products in 2002 due to concerns about
bovine spongiform encephalopathy (BSE). In June 2015, through Resolution 238/2015, Argentina’s
National Agricultural and Food Health and Quality Service (SENASA) published new import requirements
for ruminants and ruminant products, replacing previous requirements. Resolution 238/2015 adopted three
World Organization for Animal Health (OIE) categories for BSE risk classification. Through Resolution
238/2015, Argentina recognized the OIE’s classification of the United States as a country with negligible
BSE risk. In March 2016, the U.S. Department of Agriculture (USDA) sent a proposal to Argentina

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requesting full market access for all U.S. beef and beef products. USDA is working with SENASA on the
proposal.

Animal Health

Pork

Argentina does not currently allow imports of U.S. pork. In October 2016, the United States proposed
revisions to SENASA on the sanitary certificate to address concerns raised by Argentina in previous
discussions. SENASA had indicated that it will only accept imports of U.S. pork from herds that have
tested negative for Trichinellosis and have no reported cases of Porcine Reproductive and Respiratory
Syndrome (PRRS). The United States does not consider these requirements to be science-based, however,
and the OIE does not recognize trade in pork as posing a threat of transmitting the disease. U.S. producers
maintain stringent biosecurity protocols that have virtually eradicated trichinae in commercial pork
production. Thus, the risk of introducing PRRS into the Argentine herd due to the import of U.S. pork is
negligible. The United States will continue to engage with SENASA to resolve these issues.

Poultry

Argentina does not allow imports of fresh, frozen, and chilled poultry from the United States due to
concerns over Avian Influenza (AI). Argentina also has not recognized the U.S. sanitary inspection system
as equivalent to the Argentine system. In October 2015, USDA’s Animal and Plant Health Inspection
Service (APHIS) and Foreign Agricultural Service provided SENASA a comprehensive presentation on the
status of Highly Pathogenic Avian Influenza (HPAI) in the United States and on the success of the U.S.
Government’s eradication program. In addition, APHIS requested that Argentina regionalize its restrictions
related to HPAI either by state or county. On November 30, 2015, APHIS informed SENASA that the
United States had complied with all the required OIE actions and requirements related to HPAI needed to
be declared free of the disease after the 2015 HPAI outbreak. Argentina has indicated that it would accept
cooked poultry products from the United States, but there is no agreement yet on the terms of the necessary
sanitary certificate as Argentina has maintained that the U.S. poultry inspection system is not equivalent to
the Argentine system.

IMPORT POLICIES

Tariffs

Argentina is a member of the Southern Common Market (MERCOSUR), formed in 1991 and comprised
of Argentina, Brazil, Paraguay, and Uruguay. Venezuela was suspended as a full member from
MERCOSUR in December 2016. MERCOSUR maintains a Common External Tariff (CET) schedule with
most favored nation (MFN) applied rates ranging from zero percent to 35 percent ad valorem. Argentina’s
import tariffs follow the MERCOSUR CET with some permitted exceptions. Argentina’s average MFN
applied tariff was 13.6 percent in 2015. Argentina’s average bound tariff rate in the WTO is significantly
higher at 31.8 percent. According to current MERCOSUR rules, any good introduced into any member
country must pay the CET to that country’s customs authorities. If the product is then re-exported to any
other MERCOSUR country, the CET must be paid again to the second country. Modifications to
MERCOSUR tariff rates are made through resolutions and are published on the official website, which can
be viewed at: http://www.mercosur.int/innovaportal/v/7661/2/innova.front/resoluciones-2016.

MERCOSUR members have agreed to increase import duty rates temporarily to a maximum rate of 35
percent on 100 tariff items per member country. For Argentina, the list of products subject to the maximum
tariff rate as of January 2016 can be viewed at:

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http://servicios.infoleg.gob.ar/infolegInternet/anexos/255000-259999/257919/norma.htm.

MERCOSUR member countries are also allowed to set import tariffs independently for some types of
goods, including computer and telecommunications equipment, sugar, and some capital goods. Argentina
imposes a 14 percent tariff on imports of capital goods that are also produced domestically. Imports of
certain other capital goods that are not produced domestically are subject to a reduced ad valorem tariff of
2 percent. A list of the goods affected and their respective tariff rates can be found at:
http://servicios.infoleg.gob.ar/infolegInternet/anexos/250000-254999/254829/norma.htm.

In 2010, MERCOSUR’s Common Market Council (CMC) advanced toward the establishment of a Customs
Union with its approval of a Common Customs Code (CCC) through Decisions 027/2010 and Decision
056/2010 (both dated December 2010) to implement a plan to eliminate the double application of the CET
within MERCOSUR. All MERCOSUR members must ratify the CCC for it to take effect, but thus far,
only Argentina has done so.

Argentina has bilateral arrangements with Brazil and Uruguay on automobiles and automotive parts
intended to provide preferential treatment among the three countries. Mexico and Argentina also have a
separate bilateral trade agreement regarding automobiles and automotive parts.

Nontariff Barriers

Import Licenses

Argentina subjects imports to automatic or non-automatic licenses that are managed through the
Comprehensive Import Monitoring System (SIMI), established in December 2015 by the National Tax
Agency (AFIP) through Resolutions 5/2015 and 3823/2015. The United States continues to have significant
questions about whether the adoption of the SIMI brings Argentina’s import licensing measures into
compliance with its WTO obligations, and the United States is working with Argentina to address these
concerns.

The resolutions require that importers submit electronically detailed information about goods to be imported
into Argentina. Once the information is submitted, relevant Argentine government agencies review the
application through a “Single Window System for Foreign Trade.” The automatic import licensing
requirements apply to approximately 87 percent of Argentina’s tariff schedule. The list of products subject
to non-automatic licensing has been modified several times, with a net increase since the beginning of the
SIMI system. As of December 2016, Argentina maintained non-automatic import license requirements on
12,348 12-digit tariff lines, including on products the government deems import-sensitive such as
automobiles, paper and cardboard, iron and steel, nuclear reactors, electrical materials and parts, toys,
textiles and apparel, and footwear. The full text of Resolution 5/2015 with the affected tariff lines can be
accessed at: http://servicios.infoleg.gob.ar/infolegInternet/anexos/255000-259999/257251/norma.htm.

Foreign Transactions Monitoring Unit

In November 2014, via Decree 2103/2014, the Argentine government established the Unit of Monitoring
and Traceability of Foreign Trade Operations, coordinated by the Chief of Cabinet with participation from
the Ministry of Economy, the Customs Office, the AFIP, the National Securities and Exchange
Commission, Financial Information Unit, and the Central Bank, among other financial regulatory agencies.
The stated objective of this Joint Unit is to track all international trade operations to ensure transparency
and accuracy and to prevent over- and under-invoicing by commercial entities. Many enterprises,
especially multinationals, have expressed concerns that this Joint Unit further increases governmental
controls over international trade.

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Customs Valuation

Argentina continues to apply reference values to several thousand products. Under this system, authorities
establish benchmark unit prices for customs valuation purposes for certain goods that originate in, or are
imported from, specified countries. These benchmarks are not, in fact, “prices” because they are not paid
or payable when the respective goods are sold for export to Argentina. They are used, nonetheless, to
establish a minimum price for market entry and dutiable value. Importers of affected goods must pay duties
calculated on the reference value, unless they can prove that the transaction was conducted at arm’s length.

Argentina also requires importers of any goods from designated countries, including the United States, that
are invoiced below the reference prices to have the invoice validated by both the exporting country’s
customs agency and the appropriate Argentine embassy or consulate in that country. The Argentine
government publishes an updated list of reference prices and covered countries, which is available at:
http://www.afip.gov.ar/aduana/valoracion/valores.criterios.pdf.

Certificates of Origin

Certificates of origin have become a key element in Argentine import procedures to enforce antidumping
measures, reference prices, and certain geographical restrictions. Argentina requires certificates of origin
for certain categories of products, including certain organic chemicals, tires, bicycle parts, flat-rolled iron
and steel, certain iron and steel tubes, air conditioning equipment, wood fiberboard, most fabrics (e.g., wool,
cotton, other vegetable), carpets, most textiles (e.g., knitted, crocheted), apparel, footwear, metal screws
and bolts, furniture, toys and games, brooms, and brushes. To receive the MFN tariff rate, a product’s
certificate of origin must be certified by an Argentine embassy or consulate, or carry a “U.S. Chamber of
Commerce” seal. For products with many internal components, such as machinery, each individual part is
often required to be notarized in its country of origin, which can be very burdensome. Importers have stated
that the rules governing these procedures are unclear and can be enforced arbitrarily.

Express Delivery and Electronic Commerce

On August 26, 2016, Argentina issued Resolutions 3915 and 3916, allowing the import of goods via mail
or through an express delivery service provider. Non-commercial mail shipments with a value of $200 or
less and a weight not greater than two kilograms may now be delivered door-to-door. Books, printed
material, and documents may be delivered door-to-door without the need to complete an international postal
shipment declaration. Non-commercial courier shipments with a value of $1,000 or less and a weight not
greater than 50 kilograms are exempt from import licensing and certain other import requirements, subject
to certain conditions, including an annual limit of five shipments per person. Buyers have to pay a 50
percent tax on all but the first $25 of their orders.

Prior to the issuance of these regulations, simplified customs clearance procedures on express delivery
shipments were only available for shipments valued at $1,000 or less, and some of the requirements for
couriers, such as having to declare the tax identification codes for senders and addressees, rendered the
process time-consuming and costly.

Argentina does not have a centralized platform for, and does not allow the use of, electronically-produced
airway bills, which would accelerate customs processing and the growth of electronic commerce
transactions.

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Ports of Entry

Argentina restricts entry points for several classes of goods, including sensitive goods classified in 20
Harmonized Tariff Schedule chapters (e.g., textiles; shoes; electrical machinery; iron, steel, metal, and other
manufactured goods; and watches), through specialized customs procedures for these goods. A list of
products affected and the ports of entry for those products is available at:
http://servicios.infoleg.gob.ar/infolegInternet/anexos/130000-134999/131847/norma.htm.

Used Capital Goods Imports

Argentina prohibits the import of many used capital goods. Under the Argentina-Brazil Bilateral
Automobile Pact, Argentina bans the import of used self-propelled agricultural machinery unless it is
imported to be rebuilt in-country. Argentina also prohibits the importation and sale of used or retreaded
tires (but in some cases allows remolded tires); used or refurbished medical equipment, including imaging
equipment; and used automotive parts. Argentina generally restricts or prohibits the importation of any
remanufactured good, such as remanufactured automotive parts, earthmoving equipment, medical
equipment, and information and communications technology products. In the case of remanufactured
medical goods, imports are further restricted by the requirement that the importer of record must be the end
user, such as a hospital, doctor, or clinic. Such parties are generally not accustomed to importing and are
not typically registered as importers.

Domestic legislation requires compliance with strict conditions on the entry of those used capital goods that
may be imported, as follows:

 Used capital goods can only be imported directly by the end user.
 Overseas reconditioning of the goods is allowed only if performed by the original
manufacturer. Third-party technical appraisals are not permitted.
 Local reconditioning of the good is subject to technical appraisal to be performed only by the
state-run Institute of Industrial Technology (INTI), except for aircraft-related items.
 Regardless of where the reconditioning takes place, the Argentine Customs Authority requires,
at the time of importation, the presentation of a “Certificate of Import of Used Capital Goods.”
This certificate is issued by the Secretariat of Foreign Trade following approval by the
Secretariat of Industry. Pursuant to Resolutions 12/2014 and 4/2014 of January 2014, the
import certificate for used capital goods has a duration of 60 working days from the issue date.
 The time period during which the imported used capital good cannot be transferred (sold or
donated) is four years.

Pursuant to Decree 2646/2012, used capital goods that may be imported are subject to a 28 percent tax if
local production of the good exists; a 14 percent tax in the absence of existing local production; and a 6
percent tax if the used capital good is for the aircraft industry. There are exceptions for used capital goods
employed in certain industries (e.g., printing, textiles, mining, and in some cases, aviation), which permit
imports of the goods at a zero percent import tax.

On November 15, 2016, the government issued Decree No. 1174/2016, which reduces by 25 percent the
import tariffs for certain used capital goods that are needed as part of investment projects. Complementary
used capital and intermediate industrial goods, not more than 20 years old, for use in domestic production
lines are also eligible.

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Used Goods for Consumption

Resolution 909/1994, issued by the Ministry of Economy, places restrictions on the importation of certain
used goods for consumption, such as parts and components that are not used in the manufacture of other
products. Decree 1205, issued November 29, 2016, modified the list of restricted items and established
import tariffs ranging from 6 to 28 percent for some of these items. The full list of restricted items can be
viewed at http://servicios.infoleg.gob.ar/infolegInternet/anexos/265000-269999/268328/norma.htm. The
list includes electronic and recording equipment; railroad vehicles and other railroad parts; optic,
photography and filming equipment; tractors; buses; aircrafts; and ships.

Used Clothing Imports

Argentina maintains an import prohibition on used clothing.

National Supply Law

In September 2014, Argentina amended the 1974 National Supply Law to expand the ability of the
government to regulate private enterprises by setting minimum and maximum prices and profit margins for
goods and services of private enterprises. Private companies determined by the government to be making
“artificial” or “unjustified” profits may be subject to fines of up to 10 million pesos (approximately $770
thousand) and a potential 90-day closure of their business. This law is still in effect.

In February 2015, Argentina issued Resolution 17, which creates the “System of Monitoring the Supply
and Availability of Goods and Inputs” (SIMONA). SIMONA is a data tracking tool that aims to detect
production or distribution issues before they affect supply. Argentina also uses SIMONA to collect price
data. Pursuant to Resolution 17, any company engaging in production or distribution in Argentina must
report via SIMONA any impediments to its production or distribution process.

Taxes

In August 2012, the Argentine Tax Authority (AFIP) issued Resolution 3373, which raised the rate of
certain taxes charged after import duties are levied, thereby increasing the tax burden for importers. The
value-added tax (VAT) advance rate rose from 10 percent to 20 percent on imports of consumer goods, and
from 5 percent to 10 percent on imports of capital goods. The income tax advance rate on imports of all
goods increased from 3 percent to 6 percent, except when the goods are intended for consumption or for
use by the importer, in which case an 11 percent income tax rate applies.

Since 2009, Argentina has applied a 21 percent VAT on information technology and electronic products,
including mobile phones, cameras, and tablets produced outside the Special Customs Area within Tierra
del Fuego province. Additionally, imports of these electronics products were subject to a 35 percent import
duty, while imports of electronic components were subject to a 12 percent duty. Decree 117/2017, issued
on February 17, 2017, eliminates the 35 percent duty on imports of a number of electronic devices effective
April 1, 2017, and the 12 percent import duty on electronic components as of February 21, 2017. The list
of products subject to Decree 117 can be found here:
https://www.boletinoficial.gob.ar/#!DetalleNorma/159229/20170220.

On July 5, 2016 the Ministry of Production and the Ministry of Energy and Mining issued Joint Resolutions
123 and 313, which allow companies to obtain tax benefits on purchases of solar or wind energy equipment
for use in investment projects that incorporate at least 60 percent local-content in their electromechanical
installations. In cases where local supply is insufficient to reach the 60 percent threshold, the threshold can
be reduced to 30 percent. The resolutions also provide tax exemptions for imports of capital and

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intermediate goods that are not locally produced for use in the investment projects. For a list of goods that
are not locally produced, see Annex 1 of the resolutions, found at:
http://servicios.infoleg.gob.ar/infolegInternet/anexos/260000-264999/263282/norma.htm.

On August 1, 2016, Argentina issued law 27263, which, once implemented, will provide tax benefits to
automobile manufacturers for the purchase of locally-produced automotive parts and accessories
incorporated into specific types of vehicles. The tax benefits range from four to 15 percent of the value of
the purchased parts. The list of vehicle types included in the regime can be seen at:
http://servicios.infoleg.gob.ar/infolegInternet/anexos/260000-264999/263955/Norma.htm.

Consumer Goods Price Control Program

In January 2014, the Argentine government launched a voluntary consumer goods price control program
called “Precios Cuidados.” Under the program, participating businesses agree to adhere to price caps on
nearly 200 basic consumer goods. Since January 2016, the program has been extended several times with
prices adjusted for inflation and additional products added to the program. The current program is in effect
until May 6, 2017 and includes 545 products. The full list of the goods can be viewed at:
http://precioscuidados.gob.ar/.

In February 2016, the Argentine government issued resolution 12/2016, which established the “Electronic
System of Advertised Prices” (SEPA) program, accessible online or via mobile app, to monitor retail
prices. Supermarkets are required to publish their price lists and customers can submit firsthand price
information. Customers can complain about price increases on any given product to the National
Commission for the Defense of Competition (CNDC), which has the authority to fine companies if it
determines the price increases are not justified.

EXPORT POLICIES

Export Tariffs

Argentina has a long history of applying export tariffs on a variety of agricultural commodities to increase
government revenues, with lower rates on processed goods to incentivize value-added processes. In
December 2015, through Decrees 133/2015 and 160/2015, the government eliminated export taxes on most
goods. A few export taxes, however, were retained. Soybeans are taxed at 30 percent; soy flour and oil at
27 percent; soy pellets and other refined mixed soy oils at 27 percent; bovine leather at 10 percent; wool
not carded or combed at 5 percent, and paper and cardboard waste for recycling at 20 percent. Export taxes
on biodiesel are 5.24 percent in December 2016. The full text of the decrees can be found at:
http://servicios.infoleg.gob.ar/infolegInternet/anexos/255000-259999/256979/norma.htm and
http://servicios.infoleg.gob.ar/infolegInternet/anexos/255000-259999/257076/norma.htm.

On February 12, 2016, the Argentine government issued decree 349/2016, eliminating previously-existing
export duties on metal and non-metal mining products. Those duties had been between 5 and 10
percent. The full text of the decree can be found at:
http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do?id=258595.

The MERCOSUR Common Customs Code (CCC) restricts future export taxes and anticipates a transition
to a common export tax policy, but the CCC is not yet in effect. In November 2012, Argentina became the
first MERCOSUR member to ratify the CCC, but all MERCOSUR member countries must ratify the CCC
before it goes into effect.

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Export Ban

On July 2, 2016, pursuant to Decree 823/2016, Argentina implemented a 360-day ban on all exports of
scrap of iron, steel, copper, and aluminum.

Export Registrations and Permits

Since December 29, 2015, Argentina has required exporters of grains, oilseeds, and their derivatives to
obtain Affidavits of Foreign Sales (“DJVE” or Declaraciones Juradas de Ventas al Exterior) and register
the exportation with the Office of Coordination and Evaluation of Subsidies to Domestic Consumption
(UCESCI). Approved DJVEs are valid for 180 days, except DJVEs for wheat, which are valid for 45 days.
In the case of soybeans and other soy products, exporters are required to pay 90 percent of the export tax at
the time of the DJVE approval. On September 26, 2016, the Ministry of Agroindustry, together with the
Ministry of Production and the Ministry of Treasury and Public Finances, issued Joint Resolution 1-E,
extending the DJVE requirement for the 2016-2017 agricultural year.

Prior to March 30, 2016, an export permit was required for the exportation of dairy products. However, the
permit requirement was replaced by a requirement to obtain DJVEs prior to export. Export permits are still
required for the exportation of meat. However, meat exports are not restricted in practice.

SUBSIDIES

In October 2014, Argentina launched the “Ahora 12” program, which allows individuals to finance the
purchase of certain domestically-manufactured goods, ranging from clothing to home appliances, in 12
monthly installments without interest. The program has been extended several times. On November 23,
2016, the program was extended until March 31, 2017, and the duration of interest-free financing was
increased to 18 months. Consequently, the program was rebranded “Ahora 18.” Products eligible for Ahora
18 include electronic notebooks and tablets, tourist packages, and motorcycles. The list of goods qualifying
for the program can be found at http://www.ahora12.gob.ar/.

Argentina provides full or partial VAT refunds to exporters of consumer goods. The Ministry of Agro-
Industry maintains a list of qualifying agricultural products. The reimbursement scheme was last updated
in December 2016 through Decree 1341, which can be viewed at:
http://servicios.infoleg.gob.ar/infolegInternet/anexos/270000-274999/270117/norma.htm. The decree also
provides an additional 0.5 percent refund to exporters of products that are certified with geographic or origin
indications; are certified as organic; or that meet quality and innovation standards that qualify the good to
be labelled “Argentine Food a Natural Choice.” These certifications and labels are granted by the Ministry
of Agro-Industry.

Argentina currently has a tax-exempt trading area called the Special Customs Area (SCA), located in Tierra
del Fuego province. The SCA was established in 1972 through Law 19,640 to promote economic activity
in the southern province. The SCA program, which is set to expire at the end of 2023, provides benefits
for established companies that meet specific production, exportation, and employment objectives. Goods
produced in Tierra del Fuego and shipped through the SCA to other parts of Argentina are exempt from
some local taxes and benefit from reductions in other taxes. Additionally, capital and intermediate goods
imported into the SCA for use in production are exempt from import duties. Goods produced in and
exported from the SCA are exempt from export taxes. Since November 2009, cell phones, televisions,
digital cameras, and other electronic items not produced in the SCA are subject to a 21 percent VAT. Some
products are brought from outside Argentina to facilities in the SCA where they are taken apart and
reassembled for sale inside Argentina in order to qualify for tax benefits.

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GOVERNMENT PROCUREMENT

Argentine law establishes a national preference for local industry for most government procurement if the
domestic supplier’s tender is no more than five percent to seven percent higher than the foreign tender. The
amount by which the domestic bid may exceed a foreign bid depends on the size of the domestic company
making the bid. The preference applies to procurement by all government agencies, public utilities, and
concessionaires. There is similar legislation at the sub-national (state) level.

On November 16, 2016 the government passed a private-public partnership law (No. 27,328) that regulates
public-private contracts. The law lowers regulatory barriers to foreign investment in public infrastructure
projects with the aim of attracting more foreign direct investment. However, the law contains a “Buy
Argentina” clause which mandates at least 33 percent local content for every public project.

Argentina is not a signatory to the WTO Agreement on Government Procurement, but it is an observer to
the WTO Committee on Government Procurement.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Argentina remained on the Priority Watch List in the 2016 Special 301 Report. Enforcement challenges
and other factors have diminished market access for U.S. IP-intensive industries. The absence of sustained
enforcement efforts – including under the criminal laws – sufficient to have a deterrent effect, coupled with
judicial inefficiency, have made it possible for La Salada, one of South America’s largest black markets
for counterfeit and pirated goods, to flourish and generate smaller branches throughout the country.
Apparent lack of understanding about technology and online jurisdiction within the judicial system hinder
the ability of right holders, law enforcement, and prosecutors to halt, through legal action, the growth of
illegal online markets. Some progress was made in 2015 with the closing of notorious online market
Cuevana.tv, though various mirror sites and a mobile platform still persist.

The situation for innovators in the pharmaceutical and agrochemical sectors also presents significant
concerns. First, the scope of patentable subject matter is significantly restricted under Argentine law.
Second, the patent pendency backlog continues to be excessive. Third, there is no means of adequate
protection against unfair commercial use and unauthorized disclosure of undisclosed test and other data
submitted to the government in conjunction with its lengthy and challenging marketing approval process.
The Argentine Congress is considering legislative proposals to update the national seed law. Some
proposals may negatively affect the ability to protect and enforce plant variety rights and other intellectual
property rights. The United States will continue to engage Argentina on these and other issues.

SERVICES BARRIERS

Foreign Tourism

Since December 17, 2015, purchases of transportation tickets and tourist packages to travel abroad, if paid
for in cash or by bank transfer, have been subject to a 5 percent tax.

Audiovisual Services

The Argentine government imposes restrictions on the showing, printing, and dubbing of foreign films in
Argentina. Argentina also charges ad valorem customs duties on U.S. film exports based on the estimated
value of the potential royalty generated from the film in Argentina rather than on the value of the physical
materials being imported.

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The National Institute of Cinema and Audiovisual Arts taxes foreign films screened in local movie theaters.
Distributors of foreign films in Argentina must pay screening fees that are calculated based on the number
and geographical locations of theaters at which the films will be screened within Argentina. Films that are
screened in 15 or fewer movie theaters are exempted.

The Media Law, enacted in 2009 and amended in 2015, requires companies to produce advertising and
publicity materials locally or to include 60 percent local content. The Media Law also establishes a 70
percent local production-content requirement for companies with radio licenses. Additionally, the Media
Law requires that 50 percent of the news and 30 percent of the music that is broadcast on the radio be of
Argentine origin. In the case of private television operators, at least 60 percent of broadcast content must
be of Argentine origin. Of that 60 percent, 30 percent must be local news and 10 to 30 percent must be
local independent content.

Insurance Services

Beginning in early 2011, the Argentine insurance regulator (SSN) prohibited cross-border reinsurance. As
a result, Argentine insurers have been able to purchase reinsurance only from locally-based
reinsurers. Foreign companies without local operations have not been allowed to enter into reinsurance
contracts except when the SSN determines there is no local reinsurance capacity.

In November 2016, however, SSN eased reinsurance restrictions to allow foreign companies to provide
reassurance at 10 percent of the ceded premium, starting in January 2017. This percentage is scheduled to
be increased gradually to a maximum of 80 percent by 2024. SSN requires that all investments and cash
equivalents held by locally-registered insurance companies be located in Argentina.

Telecommunications

Telecommunication services are regulated by the Media Law and the Digital Law. Presidential Decree
267/2015 amended the Media Law, adding provisions that prohibit satellite television suppliers from also
providing telecommunications services (including broadband Internet access) and video-on-demand
services. The amendment also prohibited the bundling of satellite television with any telecommunications
services. In addition, the decree maintains certain regulatory requirements for satellite television (e.g., an
obligation to carry certain free-to-air television channels) that are not applied to cable television suppliers,
putting satellite providers at a competitive disadvantage. Moreover, mobile and fixed telephone companies
are prohibited from entering the cable pay-TV market until January 1, 2018. The U.S. Government raised
concerns with Argentina about possible discriminatory aspects of the law. On December 30, 2016, the
Ministry of Communications issued Decree 1340, which created a grandfather provision allowing satellite
television suppliers that already held licenses for information technology services to continue providing
such services, including broadband Internet access. The Decree maintains the prohibitions on satellite
service provides from bundling services and on telephone companies from operating in the cable market
until January 1, 2018.

INVESTMENT BARRIERS

Pension System

In 2008, the Argentine Parliament approved a bill to nationalize Argentina’s private pension system and
transfer pension assets to the government social security agency. Compensation to investors in the
privatized pension system, including to U.S. investors, is still pending and under negotiation.

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Foreign Exchange

Hard currency earnings on exports of both goods and services must be converted to pesos in the local
official foreign exchange market. In January 2017, Argentina issued Resolution 47 granting exporters a
maximum of ten years from date of export to fulfill the requirement to convert foreign currency to pesos.
Also in January 2017, Argentina issued Resolution 1, which eliminated a previous requirement that capital
inflows into Argentina remain in the country for a minimum of 120 days. In August 2016, the Central Bank
issued Circular A 6037, which nullified a former requirement that Argentines obtain government
authorization for foreign currency purchases in excess of $2 million.

Localization Measures

Argentina maintains certain localization measures aimed at encouraging domestic production. For
example, the Argentine National Mining Agency (Agencia Nacional de Minería) requires mining
companies registered in Argentina to use Argentine-flagged vessels to transport minerals and their industrial
derivatives for export from Argentina. Argentina’s Mining Law (No. 3/2012) requires mining companies
registered in Argentina to set up import-substitution departments to increase purchases of local goods and
services in connection with engineering projects.

Argentina also requires that radio and television (via airwaves and cable) advertisements have a minimum
of 60 percent local content.

In November 2015, the government issued Resolution 1219, which went into effect in May 2016, requiring
mobile and cellular radio-communication equipment manufacturers operating in Tierra del Fuego to
incorporate certain percentages of local content into their production processes and products, including
batteries, screws, chargers, technical manuals, and packaging and labelling. The percentage of local content
required ranges from 10 to 100 percent depending on the process or item. For a detailed description of
local content percentage requirements, see: http://servicios.infoleg.gob.ar/infolegInternet/anexos/255000-
259999/255494/norma.htm. In cases where local supply is insufficient to meet local content requirements,
companies may apply for an exemption.

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AUSTRALIA
TRADE SUMMARY

The U.S. goods trade surplus with Australia was $12.7 billion in 2016, a 10.3 percent decrease ($1.5 billion)
over 2015. U.S. goods exports to Australia were $22.2 billion, down 11 percent ($2.8 billion) from the
previous year. Corresponding U.S. imports from Australia were $9.5 billion, down 12 percent. Australia
was the United States' 17th largest goods export market in 2016.

U.S. exports of services to Australia were an estimated $22.3 billion in 2015 (latest data available) and U.S.
imports were $7.0 billion. Sales of services in Australia by majority U.S.-owned affiliates were $51.4
billion in 2014 (latest data available), while sales of services in the United States by majority Australia-
owned firms were $22.5 billion.

U.S. foreign direct investment in Australia (stock) was $167.4 billion in 2015 (latest data available), a 5.4
percent decrease from 2014. U.S. direct investment in Australia is led by nonbank holding companies,
mining, and finance/insurance.

TRADE AGREEMENTS

The United States-Australia Free Trade Agreement (FTA) entered into force on January 1, 2005. Since
then the U.S. and Australian governments have continued to meet regularly to review implementation.
Under the agreement, trade in goods and services and foreign direct investment have continued to expand.
Since the FTA entered into force, the value of annual U.S. goods exports to Australia has risen 59 percent
to $22.2 billion in 2016. U.S. services exports to Australia have increased by 223 percent since the
agreement entered into force. Over 99 percent of U.S. exports of consumer and industrial goods now enter
Australia duty free.

In addition to the United States, Australia has bilateral FTAs with Chile, China, Japan, Korea, Malaysia,
New Zealand, Singapore, and Thailand as well as with ASEAN as a group. Australia is also a participant
in the Regional Comprehensive Economic Partnership (RCEP) Asian regional trade negotiations which
include, in addition to Australia, the ten ASEAN countries, China, Japan, Korea, India, and New Zealand.
In November 2015, Australia and the European Union announced plans to launch an FTA negotiation.

SANITARY AND PHYTOSANITARY BARRIERS

Animal Health

Beef and Beef Products

Heat-treated beef: Australia’s Department of Agriculture and Water Resources (DAWR) notified the U.S.
Department of Agriculture in June 2015, that Food Standards Australia New Zealand assessed the bovine
spongiform encephalopathy (BSE) status of the United States to be Category 1 as of May 28, 2015. U.S.
and Australian officials continue to work to finalize an export certificate for heat-treated, shelf-stable beef
products from the United States, after which the export of these products from the United States to Australia
will be able to resume. Australia seeks certification that heat-treated beef imports will be derived from
animals that are born, raised, and slaughtered in the United States. Taking into consideration World
Organization for Animal Health guidelines and U.S. BSE surveillance and control measures, the U.S.
Department of Agriculture is advocating that beef products made from beef from cattle imported from

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Canada or Mexico and slaughtered in the United States under FSIS jurisdiction should also be eligible for
processing into products exported to Australia.

Fresh beef: For fresh (chilled or frozen) beef and beef products, the Australian government announced in
2015 the start of a review of its import requirements for three countries that have applied for eligibility to
export to Australia: the United States, Japan, and the Netherlands. This review is considering fresh (i.e.,
chilled or frozen) beef and beef products such as meat, bone, and offal of cattle, buffalo, and bison, and is
a necessary step in the process of fully reopening the Australian market to U.S. beef. In December 2016,
DAWR released a draft policy review on Australian import of fresh beef and beef products from the United
States and several other countries for stakeholder review. A final policy review with recommendations will
be published after consideration of comments and will be the basis for a decision on import access for fresh
U.S. beef. The United States will continue to urge Australia to open its market fully to U.S. beef and beef
products based on science, the OIE guidelines, and the United States’ negligible BSE risk status as
recognized by the OIE.

Pork

Frozen boneless pork is currently the top U.S. agricultural export to Australia, valued at $136 million in
2015. However, due to concerns about porcine reproductive and respiratory syndrome (PRRS) and post-
weaning multisystemic wasting syndrome (PMWS), importations of fresh/chilled pork and bone-in
products are not currently permitted. The United States has requested that Australia remove all PRRS- and
PMWS-related restrictions and has provided scientific evidence to document the safety of U.S. pork
products. The United States is engaged with Australia on technical matters related to this issue. The U.S.
Government will continue to make addressing access to the Australian market for fresh/chilled pork, bone-
in pork, and pork products a high priority.

Poultry

Australia currently prohibits imports of uncooked poultry meat from all countries except New Zealand.
While cooked poultry meat products may be imported, the current import conditions (as set out in an import
risk analysis) require that imported poultry meat products must be cooked to a minimum core temperature
of 74°C for 165 minutes or the equivalent. This temperature requirement does not permit importation of
cooked product that is suitable for sale in restaurants or delicatessens, thus limiting commercial
opportunities.

In 2012, Australia initiated an evaluation of whether it would grant access for U.S. cooked turkey meat to
the Australian market under amended import conditions. The Australian government is currently
conducting an import risk analysis to assess this issue. In August 2016, DAWR released the draft review
of cooked turkey meat from the United States for comment. The United States has identified resolution of
this issue as a high priority and continues to work with Australia to gain meaningful commercial market
access for cooked turkey meat.

Plant Health

Stone Fruit

From 2013 to 2016, the United States gained access to the Australian market for all species of California
stone fruit. The United States is continuing to work with Australia to expand access for U.S. stone fruit
from other U.S. states.

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Apples

Australia currently prohibits the importation of apples from the United States based on concerns about fire
blight and other pests. The U.S. Government and U.S. stakeholders have engaged with Australian officials
to demonstrate that U.S. mature, symptomless apples pose no risk of transmission of fire blight. In October
2009, Australia published a pest risk analysis for apples from the United States and identified three
additional fungal pathogens of concern to Australian regulatory authorities. The United States provided
additional information to Australia in December 2014, and expects Australia to finalize the import risk
analysis for apples from the United States. The United States continues to work to obtain access to
Australia’s market for apples, which is a priority for the United States.

GOVERNMENT PROCUREMENT

Under the AUSFTA, the Australian government opened its market for covered government procurement to
U.S. suppliers, eliminating preferences for domestic suppliers and committing to use fair and transparent
procurement procedures. Since 2015, the Australian government has been negotiating to accede to the
WTO’s plurilateral Agreement on Government Procurement.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Australia generally provides strong intellectual property rights protection and enforcement through
legislation that, among other things, criminalizes copyright piracy and trademark counterfeiting. Under the
AUSFTA, Australia must provide that a pharmaceutical product patent owner be notified of a request for
marketing approval by a third party for a product claimed by that patent. U.S. and Australian
pharmaceutical companies have expressed concerns about delays in this notification process.

SERVICES BARRIERS

Audiovisual Services

The Australian Content Standard of 2005 requires commercial TV broadcasters to produce and screen
Australian content, including 55 percent of transmissions between 6:00 a.m. and midnight (and also requires
minimum annual sub-quotas for Australian drama, documentary, and children’s programs). A broadcaster
must also ensure that Australian-produced advertisements occupy at least 80 percent of the total advertising
time screened in a year between the hours of 6:00 a.m. and midnight, other than the time occupied by
exempt advertisements (which include advertisements for imported cinema films, videos, recordings, live
appearances by overseas entertainers, and community service announcements). These local content
requirements do not apply to cable or online programming.

Australia’s Broadcasting Services Amendment Act requires subscription TV channels with significant
drama programming to spend 10 percent of their programming budgets on new Australian drama programs.
This local-content requirement applies to cable and satellite services, but does not apply to new digital
multi-channels or to online programming.

The Australian commercial radio industry Code of Practice requires that up to 25 percent of all music
broadcast between 6:00 a.m. and midnight be performed by Australians. In July 2010, the Australian
Communications and Media Authority announced a temporary exemption from the Australian music quota
for digital-only commercial radio stations (i.e., stations not also simulcast in analog). This exemption was
renewed in 2014 and remains in effect.

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INVESTMENT BARRIERS

Foreign direct investment into Australia is regulated by the Foreign Acquisitions and Takeovers Act 1975
and Australia’s Foreign Investment Policy. The Foreign Investment Review Board (FIRB), a division of
Australia’s Treasury, screens potential foreign investments in Australia above a threshold value that stands
at A$252 million as of January 1, 2016. Based on advice from the FIRB, Australia’s Treasurer may deny
or place conditions on the approval of particular investments above the threshold on national interest
grounds.

Under the AUSFTA, all U.S. greenfield investments are exempt from FIRB screening. In addition, under
the AUSFTA, non-greenfield U.S. investments are only screened above a (higher) threshold value, which
stands at A$1,094 million as of January 1, 2016. All foreign persons, including U.S. investors, must notify
the Australian government and get prior approval to make investments of 5 percent or more in enterprises
in the media sector, regardless of the value of the investment.

A number of recent instances of Australia’s state or territorial governments cancelling existing foreign
investment projects has prompted some concern about increased risks facing foreign investors in Australia.

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BAHRAIN
TRADE SUMMARY

The U.S. goods trade surplus with Bahrain was $134 million in 2016, a 63.7 percent decrease ($234 million)
over 2015. U.S. goods exports to Bahrain were $902 million, down 29 percent ($369 million) from the
previous year. Corresponding U.S. imports from Bahrain were $768 million, down 15 percent. Bahrain
was the United States' 78th largest goods export market in 2016.

U.S. exports of services to Bahrain were an estimated $321 million in 2015 (latest data available) and U.S.
imports were $1.1 billion.

U.S. foreign direct investment (FDI) in Bahrain (stock) was $168 million in 2015 (latest data available).

The United States-Bahrain Free Trade Agreement

Upon entry into force of the United States-Bahrain Free Trade Agreement (FTA) in August 2006, 100
percent of bilateral trade in consumer and industrial products, and trade in most agricultural products,
immediately became duty free. Duties on other products were phased out gradually over the first ten years
of the Agreement. The FTA also provided a 10-year transitional period for preferential tariff treatment for
certain quantities of textiles and apparel that did not meet the otherwise applicable requirement of being
locally sourced, in order to assist U.S. and Bahraini producers in developing and expanding business
contacts. This provision expired on July 31, 2016, such that textiles and apparel must now generally be
made from either U.S. or Bahraini yarn or fabric to benefit from preferential tariffs under the FTA.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Energy Drinks

In 2016, the six Member States of the Gulf Cooperation Council (GCC), working through the Gulf
Standards Organization (GSO), notified WTO Members of a draft regional regulation for energy drinks.
The U.S. Government and U.S. private sector stakeholders have raised questions and concerns regarding
the draft regulation, including labeling statements regarding recommended consumption and container size,
as well as potential differences in labeling requirements among GCC Member States.

Conformity Assessment Marking

In December 2013, GCC Member States issued regulations on the GCC Regional Conformity Assessment
Scheme and GCC “G” Mark in an effort to “unify conformity marking and facilitate the control process of
the common market for the GCC Members, and to clarify requirements of manufacturers.” U.S. and GCC
officials continue to discuss concerns about consistency of interpretation and implementation of these
regulations across all six GCC Member States, as well as the relationship between national conformity
assessment requirements and the GCC regulations, with a view to avoiding inconsistencies or unnecessary
duplication.

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Sanitary and Phytosanitary Barriers

In November 2016, the GCC announced that it would implement a December 2016 version of the “GCC
Guide for Control on Imported Foods” in October 2017. The United States continues to raise concerns
about the Guide, particularly a possible requirement to revise U.S. health export certificates for food and
agricultural products destined for GCC countries. The GCC has not provided a scientific justification for
its revised certificate statements, some of which may not follow the guidelines of the Codex Alimentarius
Commission, the International Plant Protection Convention and the World Organization for Animal Health.
The United States continues to request that the GCC delay implementation of the Guide and that experts
work to address these concerns.

GOVERNMENT PROCUREMENT

The FTA requires covered entities in Bahrain to conduct procurements covered by the agreement in a fair,
transparent, and nondiscriminatory manner.

Bahrain is an observer but not a signatory to the WTO Committee on Government Procurement.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

As part of its FTA obligations, Bahrain enacted several laws to improve protection and enforcement for
copyrights, trademarks, and patents. However, Bahrain has yet to accede to the International Convention
for the Protection of New Varieties of Plants (1991), a requirement under the FTA.

Bahrain’s record on intellectual property rights (IPR) protection and enforcement continues to be mixed.
Over the past several years, Bahrain has launched several campaigns to block illegal signals and prohibit
the sale of decoding devices in order to combat piracy of cable and satellite TV, and has launched several
public awareness campaigns regarding IPR piracy. However, many counterfeit consumer goods continue
to be sold openly.

As the six GCC Member States explore further harmonization of their IPR regimes, the United States will
continue to engage with GCC institutions and the Member States and to provide technical cooperation and
capacity building programs on IPR policy and practice, as appropriate and consistent with U.S. resources
and objectives.

OTHER BARRIERS

In 2015, the Ministry of Industry, Commerce and Tourism issued an order banning network marketing
schemes. The order has been used to prevent direct selling and multi-level marketing organizations from
operating in Bahrain; one U.S.-headquartered multi-level marketing firm was ordered to close its storefront
and cease sales in Bahrain with little advance warning.

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BANGLADESH
TRADE SUMMARY

The U.S. goods trade deficit with Bangladesh was $5.0 billion in 2016, a 0.6 percent decrease ($32 million)
over 2015. U.S. goods exports to Bangladesh were $895 million, down 5.0 percent ($47 million) from the
previous year. Corresponding U.S. imports from Bangladesh were $5.9 billion, down 1.3 percent.
Bangladesh was the United States’ 79th largest goods export market in 2016.

U.S. foreign direct investment in Bangladesh (stock) was $589 million in 2015 (latest data available), a
24.3 percent increase from 2014.

IMPORT POLICIES

Bangladesh’s import policies are outlined in the Import Policy Order issued by the Ministry of Commerce.
Foreign exchange is controlled by the Bangladesh Bank in accordance with Foreign Exchange Control
policies.

All imports, except for capital machinery and raw materials for industrial use, must be supported by a letter
of credit. A letter of credit authorization form and a cash bond (ranging from 10 percent to 100 percent of
the value of the imported good) are also required.

Tariffs

The Import Policy Order is the primary legislative tool governing customs tariffs. Tariffs are a significant
source of government revenue, which greatly complicates efforts to lower tariff rates.

Bangladesh levies tariffs at four primary levels of imported goods, and publishes the applied rates at:
http://customs.gov.bd/portal/services/tariff/index.jsf. Generators, information technology equipment, raw
cotton, textile machinery, certain types of machinery used in irrigation and agriculture, animal feed for the
poultry industry, certain drugs and medical equipment, and raw materials imported for use in specific
industries are generally exempt from tariffs. Samples in reasonable quantity can be carried by passengers
during travel and are not subject to tariffs; however, samples are subject to tariffs if sent by courier.

The average Most Favored Nation (MFN) tariff rate is 15.5 percent, with average rates for agricultural
products higher than for industrial goods. The maximum MFN applied rate is 25 percent. Products subject
to rates of from 5 percent to 25 percent include general input items, basic raw materials, and intermediate
and finished goods. Bangladesh provides concessions for the import of capital machinery and equipment,
as well as for specified inputs and parts, which makes determinations of tariff rates a complex and non-
transparent process. Other charges applicable to imports are an advance income tax of 5 percent; a value-
added tax of 5 percent to 15 percent, with exemptions for input materials previously mentioned; and a
supplementary duty of 10 percent to 150 percent, which applies to luxury items such as cigarettes and
perfume.

Bangladesh has abolished excise duties on all locally produced goods and services, with certain exceptions.
For example, services rendered by banks or financial institutions are subject to a tax on each savings,
current, loan, or other account with balances above defined levels, and certain taxes apply to airline tickets.

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Nontariff Measures

All importers, exporters, and brokers must be members of a recognized chamber of commerce as well as
members of a Bangladesh organization representing their trade.

Import Licenses

In general, documents required for importation include a letter of credit authorization form, a bill of lading
or airway bill, commercial invoice or packing list, and certificate of origin. For certain imported items or
services, additional certifications or import permits related to health, security or other matters are required
by the relevant government agencies. Reduced documentation requirements apply for the public sector.

Bangladesh imposes registration requirements on commercial importers and private industrial consumers.
In some cases, the registrations specify maximum values of imports. Commercial importers are defined as
those who import goods for sale without further processing. Private industrial consumers are units registered
with one of four sponsoring agencies: the Bangladesh Export Processing Zones Authority, for industries
located in the Export Processing Zones (EPZs); the Bangladesh Small and Cottage Industries Corporation,
for small and medium-sized enterprises; the Handloom Board, for handloom industries run by weavers’
associations engaged in the preservation of classical Bangladesh weaving techniques; and the Bangladesh
Investment Development Authority (BIDA) (formerly the Board of Investment), for all other private
industries.

Commercial importers and private industrial consumers (with the exception of those located in EPZs) must
register with the Chief Controller of Imports and Exports within the Ministry of Commerce. The Chief
Controller issues import registration certificates (IRC). An IRC is generally issued within 10 days of receipt
of the application. Commercial importers are free to import any quantity of non-restricted items. For
industrial consumers, the IRC specifies the maximum value (the “import entitlement”) for each product that
the industrial consumer may import each year, including items on the restricted list for imports. The
import entitlement is intended as a means to monitor imports of raw materials and machinery, most of which
enter Bangladesh at concessional duty rates.

Registration Certificate

Registered commercial and industrial importers are classified into six categories based on the maximum
value of annual imports. Initial registration fees and annual renewal fees vary depending on the category.
For example, for the sixth category, which applies if annual imports exceed approximately $640,000, the
initial registration fee is approximately $770 and the renewal fee is approximately $385.

An importer must apply in writing to the concerned Import Control Authority (ICA) for registration in any
of the six categories, and provide necessary documents, including an original copy of the “Chalan” (the
Treasury payment form) as evidence of payment of the required registration fees. The ICA makes an
endorsement under seal and signature on the IRC for each importer, indicating the maximum value of annual
imports and the renewal fee. An importer may not open a letter of credit in excess of the maximum value
of annual imports.

Indentors (representatives of foreign companies or products compensated on a commission or royalty basis)


and exporters must also pay registration and renewal fees, of approximately $500 and $250, and $90 and
$60, respectively.

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GOVERNMENT PROCUREMENT

Government procurement is primarily undertaken through public tenders under the Public Procurement Act
of 2006 and conducted by the Central Procurement Technical Unit (CPTU). The CPTU was established in
April 2002 as a unit within the Implementation Monitoring and Evaluation Division (IMED) of the Ministry
of Planning. A Director-General who reports directly to the Secretary of IMED leads the CPTU. The
government of Bangladesh publicly subscribes to principles of international competitive bidding; however,
charges of corruption are common. Bangladesh recently launched a national electronic Government
Procurement portal at http://eprocure.gov.bd, but U.S. companies have raised various concerns about the
use of outdated technical specifications, the structuring of specifications to favor preferred bidders, and a
lack of overall transparency in public tenders. Public-private partnership projects are awarded under the
PPP Act of 2015.

Bangladesh is not a signatory to the WTO Agreement on Government Procurement.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Although Bangladesh has shown improved enforcement of IPR, counterfeit goods continue to be widely
available, and music and software piracy are widespread. U.S. and other international companies in the
software, publishing, clothing, and consumer product industries complain that inadequate IPR enforcement
damages their business prospects in Bangladesh and, in certain cases, damages them in other markets due
to pirated physical goods sourced from Bangladesh. Bangladesh is in the initial stages of formulating a
national intellectual property policy which holds promise in addressing the challenges facing IPR holders
in Bangladesh, but the effort has unfortunately not made measurable progress during the past year.

Foreign software companies face significant challenges with registering and enforcing their copyrights in
Bangladesh. Although the annual bilateral trade talks between the United States and Bangladesh, the Trade
and Investment Cooperation Framework Agreement, have made progress on this issue by attaining
recognition for certain foreign country copyrights, Bangladesh has not yet instituted a gazette notification
system that would make enforcement of these rights practicable.

SERVICES BARRIERS

Foreign companies are allowed to provide services in Bangladesh except in sectors that are subject to
administrative licensing processes. Yet new market entrants face significant restrictions with respect to most
regulated commercial fields (including telecommunications, banking, and insurance), and the process for
establishing legal entities such as financial institutions is subject to strict regulatory requirements. There
have been reports that licenses are not always awarded in a transparent manner. Transfer of control of a
business from local to foreign shareholders requires prior approval from the Bangladesh Bank (control is
defined as the ability to control the board of directors or a majority of the directors). In 2016, the
Bangladesh Investment Development Authority (BIDA) was formed from the merger of the Board of
Investment and the Privatization Commission. BIDA’s goal is to push for implementation of a One-Stop
Service Act and to become Bangladesh’s one-stop private investment promotion and facilitation agency.

Telecommunications

In 1997 the government of Bangladesh opened telecommunications services to increased competition by


removing the sector from the “Reserve List,” and established the Bangladesh Telecommunication
Regulatory Commission (BTRC) as the regulatory authority. The BTRC was established to facilitate
dependable telecommunication services, with the mobile sector as its primary focus. Yet BTRC’s licensing
practices limit foreign participation in the telecommunications industry. Furthermore, frequent changes to

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regulations and tax policy in the sector increase business uncertainty, thereby decreasing the incentive to
invest.

Bangladesh imposes the highest taxes on mobile services of any country in South Asia. Taxation of the
mobile industry represents the largest source of tax revenue for the government of Bangladesh. Under the
present tax regime, the mobile industry is taxed like a supplier of luxury goods, with a series of taxes
imposed at various levels of operation. Mobile network operators pay 5.5 percent of their revenue to the
BTRC as a spectrum fee, 1 percent of their revenue into a social obligation fund, and approximately
$633,000 as an annual licensing fee. A tax of approximately $1.25 is imposed on the sale of SIM cards,
and a three percent supplementary duty is applied to charges for phone usage. Handsets are subject to a 15
percent import duty. Under the 2013-2014 Finance Act, the corporate income tax rate for listed
telecommunications companies was raised to 40 percent from the prior rate of 35 percent, while the
corporate income tax rate for mobile service providers that are not publicly listed in the Bangladesh capital
markets is 45 percent.

Owners of passive network infrastructure (such as mobile network towers) are obliged to share their
infrastructure. For example, Grameenphone – the country’s largest telecommunications provider – has
signed infrastructure sharing agreements with Banglalink, Robi, Airtel Bangladesh, as well as over 50
providers of Mobile Network Operators, Interconnection Exchange, International Gateway, International
Internet Gateway, International Terrestrial Cable, Internet Protocol Telephony Service Provider, Public
Switched Telephone Network, Worldwide Interoperability for Microwave Access, Internet Service
Provider, and Nationwide Telecommunication Transmission Network services. In addition, the BTRC is in
the process of drafting new mobile network tower guidelines. However, the process for drafting these
guidelines has been delayed for nearly three years, and draft guidance would impose a cap of 49 percent on
foreign ownership of mobile network towers.

The high tax rates adversely affect the telecommunication industry’s growth and expansion. Moreover, the
National Board of Revenue has sought to apply new telecommunication tax policies retroactively. For
example, government regulators have sought to levy taxes on mobile providers that sold SIM cards between
July 2009 and December 2011 without providing regulators with the notice called for under later
regulations.

2G networks cover almost the entire population in Bangladesh. 3G licenses were awarded at the end of
2013, and now approximately 80 percent of the population has 3G coverage. The government is keen to
introduce 4G services in Bangladesh by the end of 2017, and has given approval to state-owned operator
Teletalk and three private mobile operators to provide the service. According to the BTRC, the government
will auction 4G spectrum in June 2017 as the guidelines for 4G services are being prepared. Mobile
operators are currently preparing their networks and conducting 4G LTE trials before the upcoming 4G
spectrum license allocations.

Insurance

Section 22 of the Insurance Act of 2010 allows foreign investors to buy or hold shares in an insurance
company, and permits exclusively foreign-owned companies to supply insurance without local or state-
owned enterprise equity participation. However, U.S. companies have reported that permission to open
branch offices can be politically influenced and, at present, the government of Bangladesh is not permitting
new exclusively foreign-owned companies into the insurance market.

Currently, foreign insurance firms and their local partners can hold a stake of up to 60 percent in an insurance
company in Bangladesh. To attract more multinational insurers into the market, the government has outlined
plans that would increase the percentage stake foreign firms are permitted to hold.

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National Payment Switch

In December 2012, Bangladesh began phasing in a National Payment Switch (NPSB) for processing
electronic transactions through various channels, including ATMs, point of sale, mobile devices, and the
Internet. The main objectives of the NPSB are to create a common electronic platform for payments
throughout Bangladesh, facilitate the expansion of debit and credit card-based payments, and promote
electronic commerce.

Initially, only ATM transactions were routed through the NPSB. Yet Bangladesh intends to expand the
system and, at present, seems to be requiring certain point of sale transactions to be routed through the
system. In practical terms, the NPSB is limiting the ability of global suppliers of electronic payment
services to participate in the market. While there has been no formal guidance from Bangladesh Bank
requiring them to do so, financial institutions report that they have been pressured informally to use NPSB
rather than other commercial payment switches available. Bangladesh Bank’s position as both regulator
and market participant (it owns NPSB) creates a formidable barrier for competitors to the NPSB.

Security of NPSB transactions is another issue raised by market participants. The NPSB can only process
magnetic strip data and cannot yet process the data stored on secure chips. Banks and payment networks
have requested that the central bank review its policies on the NPSB and hold discussions with all
stakeholders to address their security concerns.

Broadcasting

According to the Bangladesh Telecommunication Act of 2001, the government must approve licenses for
foreign-originating channels. Foreign television distributors are required to pay a 25 percent supplementary
duty on revenue from licensed channels.

OTHER BARRIERS

Bureaucratic inefficiencies often discourage investment in Bangladesh. Overlapping administrative


procedures and a lack of transparency in regulatory and administrative systems can frustrate investors
seeking to undertake projects in the country. Frequent transfers of top- and mid-level officials in various
Bangladeshi ministries, directorates, and departments are disruptive and prevent timely implementation of
both strategic reform initiatives and routine duties.

Repatriation of profits and external payments are allowed under current law. But U.S. and other
international investors have raised concerns that outbound transfers from Bangladesh remain cumbersome
and that applications to repatriate profits or dividends can be held for additional information gathering or
otherwise delayed, if tax disputes arise. Government officials cite concerns that allowing even limited
outward transfers would lead to a flood of capital from Bangladesh.

U.S. and other international companies have raised concerns that the National Board of Revenue has
arbitrarily reopened sometimes decades-old tax cases, with particular targeting of cases involving
multinational companies.

Extortion of money from businesses by individuals claiming political backing is common in Bangladesh.
Other impediments to business include frequent transportation blockades called by political parties, which
can both keep workers away and block deliveries, resulting in productivity losses. Vehicles and other
property are at risk from vandalism or arson during such blockades, and looting of businesses has also
occurred.

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Land disputes are common, and both U.S. companies and citizens have filed complaints about fraudulent
land sales. For example, sellers fraudulently claiming ownership have transferred land to good faith
purchasers while the actual owners were living outside of Bangladesh. In other instances, U.S.-Bangladeshi
dual citizens have purchased land from legitimate owners only to have third parties make fraudulent claims
of title to extort settlement compensation.

Likewise, corruption remains a serious impediment to investment in Bangladesh. While the government
has established legislation to combat bribery, embezzlement, and other forms of corruption, enforcement is
inconsistent. The 2007-2008 caretaker government attempted to address the culture of corruption in
Bangladesh by increasing prosecutions, implementing systemic reforms, and strengthening the role of the
Anti-Corruption Commission (ACC), the main institutional anti-corruption watchdog. Continual efforts to
ease public procurement rules and proposals to curb the independence of the ACC, however, have
undermined even these limited institutional safeguard efforts. A 2013 amendment to the ACC Law removed
the ACC’s authority to sue public servants without prior government permission. While the ACC has
increased pursuit of cases against lower-level government officials and some higher-level officials, there
remains a large backlog of cases.

Concerns over the safety of infrastructure and industrial relations practices also have discouraged greater
investment and trade. The rapid growth of the garment sector in recent years has led to unregulated
expansion in the number and size of factories. The collapse of the Rana Plaza building and the death of
1,129 workers in April 2013 highlighted health and safety concerns in the country’s factories and the lack
of effective oversight and regulation. Recent initiatives by the government of Bangladesh, international
garment buyers, and the International Labor Organization have led to improvements in factory safety
standards and transparency over the past three years, although remediation of safety issues has progressed
unevenly. A lack of meaningful progress towards labor law reform overall, including in the country’s export
processing zones, has also been a major point of concern for Bangladeshi and international stakeholders.
Limited protections for labor organizations, weak enforcement of existing protections, and long delays in
the labor court system have led to a deep distrust of sanctioned association and bargaining processes, and
a reliance on unofficial or “wildcat” industrial actions.

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BRAZIL
TRADE SUMMARY

The U.S. goods trade surplus with Brazil was $4.1 billion in 2016, a 1.5 percent decrease ($61 million) over
2015. U.S. goods exports to Brazil were $30.3 billion, down 4.3 percent ($1.4 billion) from the previous
year. Corresponding U.S. imports from Brazil were $26.2 billion, down 4.7 percent. Brazil was the United
States' 12th largest goods export market in 2016.

U.S. exports of services to Brazil were an estimated $28.1 billion in 2015 (latest data available) and U.S.
imports were $7.8 billion. Sales of services in Brazil by majority U.S.-owned affiliates were $47.0 billion
in 2014 (latest data available), while sales of services in the United States by majority Brazil-owned firms
were $2.0 billion.

U.S. foreign direct investment in Brazil (stock) was $65.3 billion in 2015 (latest data available), a 10.0
percent decrease from 2014. U.S. direct investment in Brazil is led by manufacturing, nonbank holding
companies, and finance/insurance.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Telecommunications – Acceptance of Test Results

Pursuant to Resolution 323 of November 2002, the Brazilian National Telecommunications Agency
(ANATEL) requires testing of telecommunication products and equipment by designated testing facilities
in Brazil, rather than allowing testing by a facility certified by an independent certification body. The only
exception is in cases where the equipment is too large or too costly to transport to the designated testing
facilities. Because of these requirements, U.S. manufacturers and exporters must present virtually all of
their information technology and telecommunication equipment for testing at laboratories located in Brazil
before that equipment can be placed on the Brazilian market. This redundant testing increases costs for
U.S. exporters and can delay the time to market for their products.

The United States has urged Brazil to implement the Inter-American Telecommunication Commission
(CITEL) Mutual Recognition Agreement (MRA) with respect to the United States. Under the CITEL MRA,
CITEL participants may agree to provide for the mutual recognition of conformity assessment bodies and
mutual acceptance of the results of testing and equipment certification procedures undertaken by those
bodies to determine whether telecommunication equipment meets the importing country’s technical
regulations. The United States and Brazil are both participants in CITEL. If Brazil implemented the CITEL
MRA with respect to the United States, it would benefit U.S. suppliers seeking to sell telecommunication
equipment in the Brazilian market by accepting product testing and certification conducted in the United
States to meet Brazil’s technical requirements.

Toys – Conformity Assessment Procedures

In December 2016, Brazil’s National Institute of Metrology, Quality, and Technology (INMETRO) issued
a final measure providing for testing and conformity assessment requirements for toys (Ordinance
563/2016). The measure will enter into force on December 30, 2018. Since July 2014, INMETRO had
been developing new testing requirements (Ordinances 310/2014; 489/2014; 428/2015; and 597/2015),
which are intended to improve conformity assessment procedures and consolidate all toy-related

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certification requirements into a single measure. Under previous regulations, toy manufacturers were
required to register manufacturing facilities; the new regulation goes further and requires the registration
of each toy as part of a family of products. In addition, it appears that product labels have to bear a separate
registration number for each product family, which must be obtained through a new “Object Registration”
(Registro de Objeto) system prior to importation. The application of the new Object Registration system
to toys is expected to increase the complexity of the existing certification system, create delays in importing
toys, and increase costs for importers and Brazilian consumers. This system also requires U.S. exporters
to submit commercially sensitive and confidential business information.

Quality Requirements for Wine and Derivatives of Grape and Wine

On May 24, 2016, Brazil notified the WTO Committee on Technical Barriers to Trade (TBT) of the draft
technical regulation to set the official identity and quality standards for wine and derivatives of grape and
wine products. The U.S. Government and industry submitted comments on the draft regulation in July
2016. Previous drafts of this measure were notified to the TBT Committee in 2010 and 2015. The U.S.
industry continues to be concerned that Brazil’s definition of wine coolers and wine cocktails is overly trade
restrictive and does not allow for the addition of colors, aromas and flavors that are already permitted in
spirits-based beverages. There are also concerns that the measure requires analytical parameters for
laboratory analysis that do not correlate with the safety and quality of the product. We seek to clarify the
varieties of grapes that are allowed to make fine wine, the types of sugars that may be added to wine for
sweetening, and the pesticides that are allowable. We also seek at least a six month transition period to
adapt to new labeling requirements. The United States expressed its concern to Brazil regarding the drafts
of this measure in the June and November 2016 TBT Committee meetings. We will continue to raise
concerns and seek clarifications as Brazil finalizes this measure in 2017.

Sanitary and Phytosanitary Barriers

Pork

U.S. fresh, frozen and further processed pork products are ineligible for import into Brazil. Brazil has
indicated it will only authorize imports of U.S.-origin pork and pork products that have been tested and
shown to be free of trichinae or otherwise mitigated. The United States does not consider these
requirements for trichinosis to be necessary as U.S. pork producers maintain stringent biosecurity protocols
that serve to limit the incidence of trichinosis in the United States to extremely low levels in commercial
swine. On August 10, 2016, USDA sent a U.S. export certificate proposal for fresh pork and pork products
to the Ministry of Agriculture, Livestock, and Food Supply (MAPA). MAPA is reviewing the proposal.

IMPORT POLICIES

Tariffs

Brazil is a member of the Southern Common Market (MERCOSUR) customs union, formed in 1991 and
comprised of Argentina, Brazil, Paraguay, and Uruguay. Venezuela was suspended as a full member from
MERCOSUR in December 2016. MERCOSUR maintains a Common External Tariff (CET) schedule, with
most favored nation (MFN) applied tariff rates ranging from zero to 35 percent ad valorem. The CET
allows for a limited number of exceptions, but Brazil’s import tariffs generally follow the MERCOSUR
CET. Brazil’s MFN applied tariff rate averaged 10 percent for agricultural products and 13.5 percent for
non-agricultural products in 2015. Brazil’s average bound tariff rate in the WTO is significantly higher at
35.4 percent for agricultural products and 30.8 percent for non-agricultural products. Brazil’s maximum
bound tariff rate for industrial products is 35 percent, while its maximum bound tariff rate for agricultural
products is 55 percent. Given the large disparities between bound and applied rates, U.S. exporters face

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significant uncertainty in the Brazilian market because the government frequently increases and decreases
tariffs to protect domestic industries from import competition and to manage prices and supply. The lack
of predictability with regard to tariff rates makes it difficult for U.S. exporters to forecast the costs of doing
business in Brazil.

Brazil imposes relatively high tariffs on imports across a wide range of sectors, including automobiles,
automotive parts, information technology and electronics, chemicals, plastics, industrial machinery, steel,
and textiles and apparel. Under a July 16, 2015 MERCOSUR Common Market Council decision, Brazil is
permitted to maintain 100 exceptions to the CET until December 31, 2021. Using these exceptions, Brazil
maintains higher tariffs than its MERCOSUR partners on certain goods, including cellular phones,
telecommunications equipment, computers and computer printers, wind turbines, certain chemicals and
pharmaceuticals, cosmetics, joint cement, hydrogenated castor oil, white mineral oils, hydrogen carbonate,
machining centers, speed changers, and certain instruments and models designed for demonstration
purposes.

In 2010, MERCOSUR’s Common Market Council (CMC) advanced toward the establishment of a Customs
Union with its approval of a Common Customs Code (CCC) through Decisions 027/2010 and Decision
056/2010 (both dated December 2010) to implement a plan to eliminate the double application of the CET
within MERCOSUR. All MERCOSUR members must ratify the CCC for it to take effect, but thus far,
only Argentina has done so. Brazil’s executive branch continues to work on draft legislation to ratify the
CCC.

Brazil agreed to establish a 750,000 metric ton (MT) duty-free MFN tariff-rate quota (TRQ) for wheat as
part of its Uruguay Round commitments. Brazil has never opened the TRQ, and therefore, no wheat has
been shipped under it. In April 1996, Brazil notified the WTO of its intent to withdraw the wheat TRQ in
accordance with the negotiating process established in Article XXVIII of the GATT 1994. Brazil applies
the CET tariff rate for wheat of 10 percent, but could increase this rate at any time to as high as the 55
percent WTO bound rate. The United States continues to seek predictable and meaningful access to the
Brazilian market for U.S. wheat growers.

Nontariff Barriers

Brazil applies federal and state taxes and charges to imports that can effectively double the actual cost of
imported products in Brazil. The complexities of the domestic tax system, including multiple cascading
taxes and tax disputes among the various states, pose numerous challenges for all companies operating in
and exporting to Brazil, including U.S. firms.

For example, effective January 1, 2013, Brazil instituted a “temporary” regime for a reduction in the
Industrial Product Tax (IPI) that made preferential tax rates available to locally produced vehicles, provided
that manufacturers comply with a series of local content and other requirements. This program will remain
in effect until the end of 2017. As part of the program, the baseline IPI on all vehicles has been revised
upward by 30 percent, which is equivalent to the level applied to imported vehicles under the prior regime.
However, those vehicles meeting certain levels of local content, fuel efficiency and emissions standards,
and required levels of local engineering, research and development, or labeling standards, receive tax breaks
that may offset the full amount of the IPI. As a result, imported automobiles face a potential 30 percent
price disadvantage compared to equivalent vehicles manufactured in Brazil even before import duties are
levied.

On August 31, 2015, Brazil issued a decree to reform its excise tax regime for alcoholic beverages, which
introduced a tax advantage for domestic producers of cachaça, a distinctive product produced from
sugarcane. Pursuant to this decree, which was signed into law on December 30, 2015, Brazil imposes a 25

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percent ad valorem IPI on domestically-produced cachaça, while imposing a 30 percent ad valorem IPI on
all other alcoholic beverages, including Tennessee Whiskey, bourbon, gin and vodka.

Brazil generally prohibits imports of used consumer goods, including automobiles, clothing, tires, medical
equipment, and information and communications technology (ICT) products, as well as imports of certain
blood products. However, Secretariat of Foreign Trade (SECEX) Ordinance 23/2011 establishes an
exceptions list of 25 categories of used goods approved for import under certain specific circumstances.
Brazil also restricts the entry of certain types of remanufactured goods (e.g., earthmoving equipment,
automotive parts, and medical equipment). Brazil only allows the importation of such goods if an importer
can provide evidence that the goods are not or cannot be produced domestically, or if they meet certain
other limited exceptions.

A 25 percent merchant marine tax on ocean freight plus port handling charges at Brazilian ports also puts
U.S. products at a competitive disadvantage vis-à-vis MERCOSUR products.

Import Licenses and Customs Procedures

All importers in Brazil must register with SECEX to access SECEX’s computerized documentation system
(SISCOMEX). SISCOMEX registration is onerous, and includes a minimum capital requirement.

Brazil has both automatic and non-automatic import license requirements. Brazil’s non-automatic import
licensing system covers imports of products that require authorization from specific ministries or agencies,
such as agricultural commodities and beverages (Ministry of Agriculture), pharmaceuticals (Ministry of
Health), and arms and munitions (Ministry of National Defense). Although a list of products subject to
non-automatic import licensing procedures is available on the SISCOMEX system, specific information
related to non-automatic import license requirements and explanations for rejections of non-automatic
import license applications are lacking. The lack of transparency surrounding these procedures creates
additional burdens for U.S. exporters.

U.S. footwear and apparel companies have expressed concern about the extension of non-automatic import
licenses and certificate of origin requirements on non-MERCOSUR footwear, textiles and apparel. They
also note the imposition of additional monitoring, enhanced inspection, and delayed release of certain
goods, all of which negatively impact the ability to sell U.S.-made and U.S.-branded footwear, textiles, and
apparel in the Brazilian market.

The Brazilian government imposes non-automatic import licensing requirements on imported automobiles
and automotive parts, including those originating in MERCOSUR countries. Delays in issuing the non-
automatic import licenses negatively affect U.S. automobile and automotive parts manufacturers that export
vehicles to Brazil.

U.S. companies continue to complain of burdensome documentation requirements for the import of certain
types of goods that apply even if imports are on a temporary basis. In addition, the Ministry of Health’s
regulatory agency, ANVISA, must approve product registrations for imported pharmaceuticals, medical
devices, health and fitness equipment, cosmetics, and processed food products. The registration process at
ANVISA typically takes from three months to more than a year for new versions of existing products and
more than six months for new products.

SUBSIDIES

The Plano Brasil Maior (Greater Brazil Plan) industrial policy offers a variety of tax, tariff, and financing
incentives to encourage local producers and production for export. For example, Brazil allows tax-free

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purchases of capital goods and inputs to domestic companies exporting over 50 percent of their output.
Similarly, the Reintegra program, launched in December 2011 as part of Plano Brasil Maior, exempted
from certain taxes exports of goods covering 8,630 tariff lines, and allowed Brazilian exporters to receive
up to three percent of their gross receipts from exports in tax refunds. The Reintegra program expired at
the end of 2013 and was reintroduced in July 2014 through Law 13043/2014. The program was amended
in September 2014 through Decree 8304 to add sugar, ethanol, and cellulose, among others, to the list of
eligible products. The Reintegra program was amended again in February 2015 (Decree 8415) and October
2015 (Decree 8543), establishing that throughout most of 2015, exporters received one percent of gross
receipts from exports in tax refunds, dropping to 0.1 percent for 2016, and increasing to two percent for
2017.

For the majority of products eligible for Reintegra benefits, the total cost of imported inputs cannot exceed
40 percent of the export price of the product. For a small number of eligible products, the total cost of
imported inputs cannot exceed 65 percent of the export price.

In 2015 (latest data available), Brazil’s National Bank for Economic and Social Development (BNDES)
provided approximately $40.7 billion (R$135.94 billion) in assistance to various sectors of the Brazilian
economy through several different programs. BNDES provided approximately $1.3 billion (R$4.5 billion)
to the Investment Maintenance Program (PSI) in 2016 to finance the purchase of locally-manufactured
capital goods at preferential fixed rates. Most of the lending under this program was used to finance
infrastructure projects under the Growth Acceleration and the Logistics Investment programs. Total
BNDES financing dropped 27.6 percent in 2015 compared to 2014.

Another BNDES program, FINAME, provides preferential financing for the sale and export of Brazilian
machinery and equipment, and provides financing for the purchase of imports of such goods provided that
such goods are not produced domestically. The funding is used to finance capacity expansions and
equipment purchases in industries such as steel and agriculture. BNDES also provides preferential
financing for wind and solar farm development, contingent upon progressively more stringent local content
requirements. Currently, wind turbine suppliers of any nationality are eligible to receive preferential
BNDES financing, provided the wind towers are built with at least 70 percent Brazilian steel by 2016, and
photovoltaic suppliers must use 60 percent Brazilian-made components by 2020. In 2015, BNDES funding
for FINAME was approximately $7.45 billion (R$24.88 billion).

For the crop season of 2016/17 (October 1, 2016 through September 30, 2017), BNDES announced that it
will provide subsidized funds of R$17.4 billion for corporate and family agriculture. This is an increase of
18 percent from the 2015/16 crop year. At least 43 percent of these funds will be part of the
“MODERFROTA” program, which finances the acquisition of domestically produced agricultural
machinery at subsidized interest rates that vary from 8.5 percent to 10.5 percent per year. An additional 11
percent will be allocated to finance the working capital of Brazilian agricultural cooperatives.

Brazil’s Special Regime for the Information Technology Exportation Platform (REPES) suspends Social
Integration Program (PIS) and Contribution to Social Security Financing (COFINS) taxes on goods
imported and information technology services provided by companies that commit to export software and
information technology services to the extent that those exports account for more than 50 percent of the
company’s annual gross income. The Special Regime for the Acquisition of Capital Goods by Exporting
Enterprises (RECAP) suspends these same taxes on new machines, instruments, and equipment imported
by companies that commit for a period of at least two years to export goods and services such that they
account for at least 50 percent of the company’s overall gross income for the previous calendar year.

Brazil provides tax reductions and exemptions on many domestically-produced ICT and digital goods that
qualify for status under the Basic Production Process (Processo Produtivo Básico, or PPB). The PPB

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provides benefits for the production and development of goods that incorporate a certain minimum amount
of local content. Tax exemptions are also provided for the development and build-out of
telecommunications broadband networks that utilize locally developed products and investments under the
Special Taxation Regime for the National Broadband Installation Program for Telecommunication
Networks (Regime Especial de Tributação do Programa de Banda Larga para Implantação de Redes de
Telecomunicações, or REPNBL-Redes).

In 2013, Brazil passed the Special Regime for the Development of the Fertilizer Industry (REIF). Under
this program, fertilizer producers receive tax benefits, including an exemption for the IPI on imported
inputs, provided they comply with minimum local content requirements and can demonstrate investment in
local research and development projects.

Brazil also provides a broad range of assistance to its agricultural sector in the form of low interest
financing, price support programs, tax exemptions, and tax credits. Brazil establishes minimum guaranteed
prices for specific commodities through different programs to ensure that the returns to producers do not
fall below the guaranteed level. These programs include the Federal Government Acquisition (AGF)
program, the Acquisition from Public Option Contracts (POC) program, the Premium for Product Outflow
(PEP) program, and the Premium Equalizer Payment to the Producer (PEPRO) program. Under the AGF
and POC programs, the Brazilian government purchases commodities to maintain prices at the level of the
minimum guaranteed price. Under the PEP and PEPRO programs, producers or processors receive a
government payment in return for purchasing commodities shipped to specified regions in Brazil or
exported. The primary difference between these two programs is that the PEP payment goes to the first
purchaser of the commodity while PEPRO payments are made through an auctioning system to producers
or cooperatives, but the administration of the programs is the same. The amount of the PEP/PEPRO
payment is based on the difference between the minimum price set by the government and the prevailing
market price. Each PEP/PEPRO auction notice specifies the commodity to be tendered and the approved
destinations for that product, including export destinations. From 2003 through 2015, approximately 38
million metric tons of commodities received assistance under PEPRO at a cost of R$4.4 billion (U.S. $1.2
billion). Most of that assistance was for cotton, corn, wheat, and oranges. In 2015, the PEPRO program
also supported the production of 33,000 metric tons of rubber. In November 2016, the Ministry of
Agriculture, Livestock, and Food Supply (MAPA) announced that they would use both the PEP and PEPRO
programs for wheat, which fell below the minimum price in October.

GOVERNMENT PROCUREMENT

U.S. companies without a substantial in-country presence regularly face significant obstacles to winning
government contracts and often are more successful in subcontracting with larger Brazilian firms. By
statute, a Brazilian state enterprise may subcontract services to a foreign firm only if domestic expertise is
unavailable. Additionally, U.S. and other foreign firms may only bid to provide technical services where
there are no qualified Brazilian firms.

Brazil gives procurement preference to firms that produce in Brazil and that fulfill certain economic
stimulus requirements such as generating employment or contributing to technological development, even
if their bids are up to 25 percent more expensive than bids submitted by foreign firms not producing in
Brazil. The law allows for “strategic” ICT goods and services procurements to be restricted to those with
indigenously developed technology. The Ministry of Industry, Foreign Trade, and Services maintains an 8
percent preference margin for domestic producers in the textile, clothing, and footwear industries when
bidding on government contracts, and 5 percent to 25 percent preference margins for domestically produced
backhoes, motor graders, and a variety of pharmaceuticals.

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In 2012, Brazil’s Ministry of Science, Technology and Innovation issued the “Bigger IT Plan,” which
establishes a process for the government to evaluate and certify that software products are locally developed
in order to qualify for price preferences. Brazil’s regulations (Decrees 8.184, 8.185, and 8.186) require
federal agencies and parastatal entities to give preferences as high as 25 percent for domestically produced
high technology products such as printers and data processing machines, executive jets, certain ICT
equipment, and local software services.

Presidential Decree 8.135, adopted in 2013, imposes cyber auditing requirements on IT systems used by
Brazilian government entities. The decree continues to be implemented in stages and is a concern for U.S.
technology companies because of the potentially prohibitive costs of having a system certified for an
individual market.

State-controlled oil company Petrobras’ local content requirements are established and regulated by
Brazil’s National Petroleum Agency (ANP). Local content requirements vary by hydrocarbon resource
block (the geographic area that is awarded by the Brazilian government to companies for oil and gas
exploration), and within that block local content requirements differ for equipment, workforce, and services.
Beginning with offshore bid rounds in 2003, local content requirements were as low as 30 percent. Over
time, ANP requirements have gradually become more rigorous with local content requirements now
commonly ranging between 37-60 percent depending on the location and type of hydrocarbon block to be
explored. Technology-intensive equipment and services are subject to higher local content requirements
than low-technology equipment and services.

Brazil is not a signatory to the WTO Agreement on Government Procurement (GPA).

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Brazil remained on the Special 301 Watch List in 2016. Brazil is an increasingly important market for
domestic and foreign IP-intensive industries; however, administrative and enforcement challenges continue
to stymie market access. Brazil has taken steps to address a backlog of pending patent and trademark
applications, including the implementation of a Patent Prosecution Highway pilot program for oil and gas
industry applications, but considerable delays remain, with reported pendency averages of three years for
trademarks and 11 years for patents. A regulation that gives the health regulatory agency, ANVISA, the
authority to conduct a parallel review of patent applications for pharmaceutical products and processes
further exacerbates delays of patent registrations and has prevented patent examination by the National
Institute of Industrial Property (INPI). Further, while Brazilian law and regulations provide for protection
against unfair commercial use of undisclosed test and other data generated to obtain marketing approval for
veterinary and agricultural chemical products, similar protection is not provided for pharmaceutical
products. Additionally, in spite of continued enforcement efforts by some Brazilian agencies, pirated and
counterfeit goods remain in physical markets, and pirated content is readily accessible online. The United
States will continue to engage Brazil on these and other IP-related issues.

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SERVICES BARRIERS

Audiovisual Services and Broadcasting

Brazil imposes a fixed tax on each foreign film released in theaters, on foreign home entertainment products,
and on foreign programming for broadcast television. The taxes are significantly higher than the
corresponding taxes levied on Brazilian productions.

Remittances to foreign producers of audiovisual works are subject to a 25 percent income withholding tax.
The producer can elect to invest 70 percent of this tax in local independent productions. In addition, local
distributors of foreign films are subject to a levy equal to 11 percent of remittances to the foreign producer.
This levy, a component of the CONDECINE (Contribution to the Development of a National Film
Industry), is waived if the producer agrees to invest an amount equal to three percent of the remittance in
local independent productions. The CONDECINE levy is also assessed on foreign video and audio
advertising.

Brazil requires that all films and television shows be printed locally. Importation of color prints for the
theatrical and television markets is prohibited. Domestic film quotas also exist for theatrical screening and
home video distribution.

In 2011, Brazil enacted law 12.485, which covers the subscription television market, including satellite and
cable television. The law permits telecommunication companies to offer television packages with their
services and removes the previous 49 percent limit on foreign ownership of cable television companies.
However, there are content quotas requiring every channel to air at least three and a half hours per week of
Brazilian programming during prime time. Additionally, one-third of all channels included in any
television package must be Brazilian. The law also makes subscription television programmers subject to
the 11 percent CONDECINE levy on remittances. This levy may be waived if an amount equal to three
percent of remittances is invested in local productions. In addition, the law delegates significant
programming and advertising regulatory authority to the national film industry development agency,
ANCINE.

Cable and satellite operators are subject to a fixed levy on foreign content and foreign advertising released
on their channels. Foreign ownership in media outlets is limited to 30 percent, including the print and “open
broadcast” (non-cable) television sectors. Eighty percent of the programming aired on “open broadcast”
television channels must be Brazilian.

Express Delivery Services

U.S. express delivery service companies face significant challenges in the Brazilian market due to numerous
barriers, including high import taxes, an automated express delivery clearance system that is only partially
functional, and a lack of a de minimis exemption from tariffs for express delivery shipments. Brazil’s US
$50 de minimis exemption applies only to postal service shipments to individuals.

The Brazilian government charges a flat 60 percent duty for all goods imported through the Simplified
Customs Clearance process used for express delivery shipments. This flat rate is higher than duties
normally levied on goods arriving through regular mail, putting express delivery companies at a competitive
disadvantage. The Simplified Customs Clearance process is applicable only to shipments having no
commercial purpose; business-to-business and business-to-consumer shipments are not eligible for express
clearance. Moreover, Brazilian Customs has established maximum value limits of $5,000 for exports and
$3,000 for imports sent using express services. Express delivery companies may transport shipments of
higher value, but such shipments are subject to a formal import and declaration process.

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Financial Services

Through Resolutions 225 and 232, the Brazilian National Council on Private Insurance (CNSP) restricts
foreign insurers’ participation in the Brazilian market. Brasil Resseguros SA, a state-controlled company,
monopolized the provision of reinsurance in Brazil until the enactment of Complementary Law 126 in 2007,
which allowed private reinsurers to operate in the Brazilian market. The Superintendent Office of Private
Insurance (SUSEP) keeps and discloses a list of reinsurance companies authorized to function in Brazil. In
August 2010, the Brazilian government passed Complementary Law 126/2007, an updated form of
Complementary Law 137/2010, to liberalize entrance into national markets for foreign firms. For a foreign
company to qualify as an admitted reinsurer, it must have a representation office in Brazil, meet the
requirements of Complementary Law 126/2007, keep an active registration with SUSEP, and maintain a
minimum solvency classification issued by a risk classification agency equal to Standard & Poor’s or Fitch
ratings of at least BBB.

In July 2015, under CNSP Resolution 332, the Brazilian government announced a significant relaxation of
the restrictions on foreign insurers’ participation in the Brazilian market, established in Resolutions 225
and 232. Under the new rules, the preferential offer rate for local reinsurers will remain at 40 percent of
each cession, but mandatory cessions will be decreased to 30 percent in 2017, 25 percent in 2018, 20 percent
in 2019, and 15 percent in 2020. The cap on intra-group cessions, currently 20 percent, will be increased
annually to 30 percent in 2017, 45 percent in 2018, 60 percent in 2019, and 75 percent in 2020. Although
the restrictions will not be eliminated entirely under the new rules, these changes mark a significant
improvement.

Telecommunications

Auctions

As a condition of the 2012 auction for 2.5 GHz and 450 MHz radio spectrum, ANATEL required wireless
carriers to ensure that 50 percent of the infrastructure, including software, installed to supply the licensed
service met the requirements of the PPB (discussed above in the Subsidies section). ANATEL also required
wireless carriers to use a minimum percentage of technology developed in Brazil, starting with 10 percent
in 2012, 15 percent in 2015, and 20 percent after 2017. ANATEL extended these requirements to the 700
MHz spectrum in an auction of that frequency held in 2014. Because of these eligibility requirements,
which favor local manufacturing and technology development, no U.S. telecommunication companies
submitted bids in the 2012 and 2014 auctions. In November 2015, ANATEL’s auction for 1.8, 1.9, and 2.5
GHz spectrum had the stated goal of increasing competition and attracting smaller carriers, and did not
contain specific local content requirements. However, in the case of equivalent bids, the auction rules
provided a preference for a bid utilizing services, equipment, or materials produced in Brazil, including
those with national technology.

Local Content Requirements

The rules governing a recent spectrum auction in Brazil appear to require winning bidders to provide a
preference for technology, services, equipment, and materials produced in Brazil, as they build out their
networks. Previous auctions held in 2012 and 2014 likewise appear to mandate the purchase of
domestically-produced and domestically-developed goods during network build-out.

Among the major regulations of concern are the Certification of National Technology Software and Related
Services (or CERTICs) and the Basic Production Process (8248/1991). Brazil’s Bigger IT Industrial Plan
(“TI Maior”) includes the CERTICs certification component, which favors software developed in Brazil

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in public procurement processes. Although some stakeholders report the policy has not been applied
recently, it has not been formally rescinded. Under the Basic Production Process, Brazil provides tax
incentives for locally sourced information and ICT equipment. This process is currently being challenged
by the European Union and Japan in the WTO, and a decision from the dispute settlement panel is expected
to be issued soon.

Satellites

In 2004, ANATEL issued resolution 386, which requires foreign satellite operators to acquire landing rights
and pay annual landing rights fees to provide service in Brazilian territory. These landing rights are granted
for a fixed term no longer than 15 years, after which time the landing rights must be reacquired in order to
continue providing services. Moreover, ANATEL increased the reserve amounts at auction for satellite
filings by 17-fold between 2006 and 2015, and these reserve amounts in turn determine the landing rights
fees for foreign satellites. These landing fees are unpredictable and higher for foreign companies than for
Brazilian firms.

Unlike a Brazilian-owned auction winner that acquires the exclusive right to operate a satellite and its
associated frequencies from the selected Brazilian orbital location, the operator of a foreign-licensed
satellite does not acquire the same exclusive right when seeking an authorization to provide services in
Brazil. Instead, the foreign satellite operator obtains a non-exclusive right (a landing right) to provide
service in Brazilian territory. The foreign satellite operator obtains its authorization from its own local
administration to construct, launch, and operate a space station from a specific orbital location. Landing
rights in a given jurisdiction simply allow the satellite operator to provide a satellite service legally in that
jurisdiction, in competition with all other terrestrial and satellite operators that are licensed there.

INVESTMENT BARRIERS

Foreign Ownership of Agricultural Land

The National Land Reform and Settlement Institute (INCRA) administers the purchase and lease of
Brazilian agricultural land by foreigners. Under the applicable rules, the area of agricultural land bought
or leased by foreigners cannot account for more than 25 percent of the overall land area in a given municipal
district. Additionally, no more than 10 percent of agricultural land in any given municipal district may be
owned or leased by foreign nationals from the same country. The rules also make it necessary to obtain
congressional approval before large plots of agricultural land can be purchased by foreign nationals, foreign
companies, or Brazilian companies with majority foreign shareholding. Draft Law 4059/2012, which
would lift the limits on foreign ownership of agricultural land, is expected to be voted on by the Brazilian
Congress in 2017.

BARRIERS TO DIGITAL TRADE

Data Localization

Data localization was not included in the original text of Brazil’s 2014 Civil Rights Framework for the
Internet, or Marco Civil, legislation. However, Brazil is currently considering draft legislation that could
regulate cross border data flows and storage requirements. While these bills advanced in committee in
2016, they are not expected to come to a floor vote until mid-2017.

As Brazil looks to complement Marco Civil with comprehensive data protection and privacy legislation, it
is considering several proposals that could be modeled after the European Union’s approach. The United
States and the technology industry intend to work with Brazil during the legislative process to spur

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innovation, economic growth, and societal well-being through flexible regulatory regimes, robust cross-
border data flows, and a free and open Internet.

Technology

Source Code

Presidential Decree 8135/2013 requires that government agencies procure email, file sharing,
teleconferencing and Voice over Internet Protocol (VoIP) services from a federal Brazilian public entity
such as the SERPRO, Brazil’s Federal Data Processing Agency. Subsequent implementing regulations
(Portarias 141 and 54) impose additional requirements including auditing of government contractors’
systems and access to their source code. In August 2016, the Ministry of Planning announced its intention
to revoke the decree in favor of approved hardware and software solutions for government entities, but it
has not yet issued an alternative measure.

Internet Services

Liability/Safe Harbor

Although there are proposed laws that would modify Marco Civil, including a provision that would force
online companies to assume liability for all user communications and publications, these proposals have
not advanced substantially in Brazil’s Congress. Industry submissions cite eight concerning proposals
originating in the Brazilian Parliamentary Commission of Inquiry (CPI) Cybercrimes Commission. Of
these, the most advanced proposal is PL 5204/2016, which would amend Marco Civil to allow the judiciary,
in consideration of public interest, proportionality, scope, and speed, to block Internet sites and applications
to deter to cybercrime. Instant messaging applications would be excluded from blocking.

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BRUNEI DARUSSALAM
TRADE SUMMARY

The U.S. goods trade surplus with Brunei was $601 million in 2016, a 427.1 percent increase ($487 million)
over 2015. U.S. goods exports to Brunei were $615 million, up 360.8 percent ($481 million) from the
previous year. Corresponding U.S. imports from Brunei were $14 million, down 29.1 percent. Brunei was
the United States' 92nd largest goods export market in 2016.

U.S. exports of services to Brunei were an estimated $74 million in 2015 (latest data available) and U.S.
imports were $9 million.

TECHNICAL BARRIERS TO TRADE

Technical Barriers to Trade

Meat and Poultry Products – Halal Standards

Most food sold in Brunei is certified as halal. However, there is a small market for non-halal foods, which
must be sold in designated rooms in grocery stores separated from other products or at restaurants that are
specified as non-halal. The Ministry of Religious Affairs administers Brunei’s halal standards, which are
among the most stringent in the world.

Under the Halal Meat Act, halal meat (including beef, mutton, lamb, and chicken) can be imported only
by a person holding a halal import permit and an export permit from the exporting country. The importers
and local suppliers of halal meat must be Muslim. The Bruneian government maintains a list of the foreign
and local slaughtering centers that have been inspected and declared fit for supplying meat that can be
certified as halal. Brunei’s stringent system of abattoir approval involves on-site inspections carried out
by Bruneian government officials for every establishment seeking to export meat or poultry to Brunei.
Halal meat must be kept separately from non-halal meat at all times, and halal certification must be renewed
annually by the Brunei Religious Council. Non-halal food importers must also notify the Ministry of
Religious Affairs.

IMPORT POLICIES

Tariffs

Brunei has bound 95.3 percent of its tariff lines, according to the WTO, with an average bound MFN tariff
rate of 25.4 percent. Its average applied MFN tariff rate is 1.2 percent. With the exception of a few
products, including coffee, tea, tobacco, and alcohol, tariffs on agricultural products are zero. Brunei
applies duties of up to 20 percent on automotive parts.

GOVERNMENT PROCUREMENT

Under current Brunei regulations, government procurement is conducted by individual ministries and
departments, which must comply with financial regulations and procurement guidelines issued by the State
Tender Board of the Ministry of Finance. Tender awards above BND $500,000 must be approved by the
Sultan in his capacity as Minister of Finance, based on the recommendation of the State Tender Board.

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Most invitations for tenders or quotations are published in a bi-weekly government newspaper, but are often
selectively tendered only to locally registered companies. Some ministries and departments publish tenders
on their individual websites. Foreign firms may participate in the tenders individually, but are advised by
the government to form a joint venture with a local company.

Brunei is not a signatory to the WTO Agreement on Government Procurement.

INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION

Brunei has made recent progress on IPR enforcement and was not listed in the 2016 Special 301 Report.
Concerns remain in some areas, however, including with respect to whether Brunei provides effective
protection against unfair commercial use and against unauthorized disclosure of undisclosed test or other
data generated to obtain marketing approval for pharmaceutical products. The United States will continue
to work bilaterally with Brunei to address these concerns.

OTHER BARRIERS

Brunei’s Local Business Development Framework seeks to increase the use of local goods and services,
train a domestic workforce, and develop Bruneian businesses by placing requirements on all companies
operating in the oil and gas industry in Brunei to meet local content targets in hiring and contracting. The
Framework sets local content targets based on the difficulty of the project and the value of the contract,
with more flexible local content requirements for projects requiring highly specialized technologies or with
a high contract value.

In June 2016, the Brunei government announced a land code amendment that has created uncertainty over
land rights. The order would retroactively restrict non-citizens, including Brunei ethnic minorities, from
buying, selling, or holding land by means of powers of attorney or trust deeds. The amendments were
published in the official government gazette, but have not been implemented. Domestic and foreign
stakeholders in Brunei have raised concerns about the retroactive application of these amendments to
existing contracts.

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CAMBODIA
TRADE SUMMARY

The U.S. goods trade deficit with Cambodia was $2.5 billion in 2016, a 7.0 percent decrease ($184 million)
over 2015. U.S. goods exports to Cambodia were $362 million, down 7.5 percent ($29 million) from the
previous year. Corresponding U.S. imports from Cambodia were $2.8 billion, down 7.0 percent. Cambodia
was the United States' 103rd largest goods export market in 2016.

IMPORT POLICIES

Tariffs

Cambodia is one of the few least-developed WTO Members that made binding commitments on all products
in its tariff schedule when it joined the WTO in 2004. Cambodia’s overall simple average bound tariff rate
is 19.1 percent, while the average applied tariff rate is around 11.2 percent. Cambodia’s highest applied
tariff rate is 35 percent, which is imposed across a number of product categories, including a wide variety
of prepared food products, bottled and canned beverages, cigars and cigarette substitutes, table salt, paints
and varnishes, cosmetic and skin care products, glass and glassware, electrical appliances, cars, furniture,
video games, and gambling equipment.

Customs

Both local and foreign businesses have raised concerns that the Customs and Excise Department engages
in practices that are nontransparent and that appear arbitrary. Importers frequently cite problems with undue
processing delays, burdensome paperwork, and unnecessary formalities.

On February 12, 2016, Cambodia ratified the WTO Trade Facilitation Agreement.

Taxation

Cambodia levies trade-related taxes in the form of customs duties, additional taxes on gasoline ($0.02 per
liter) and diesel oil ($0.04 per liter), two indirect taxes (a value-added tax (VAT) and an excise tax), and
taxes on exports. The VAT is applied at a uniform rate of 10 percent. To date, the VAT has been imposed
only on large companies, but the Cambodian government is working to expand the base to which the tax is
applied. To meet this objective, the Department of Taxation has piloted a number of measures. One recent
effort allows customers to submit purchase receipts to the department via a smart phone application, which
allows the tax department staff to see discrepancies when they look at companies’ tax reports, thereby
discouraging tax evasion. The VAT is not collected on exports and services consumed outside of Cambodia
(technically, a zero percent VAT applies). Subject to certain criteria, the zero percent rate also applies to
businesses that support exporters and subcontractors that supply goods and services to exporters, such as
agricultural exporters and garment and footwear manufacturers.

GOVERNMENT PROCUREMENT

The government has a general requirement for competitive bidding in procurements valued over KHR 100
million (approximately $25,000). However, government procurement is often not transparent and the
Cambodian government frequently provides short response times to public announcements of tenders,
which are posted on the Ministry of Economy and Finance’s website. For construction projects, only
bidders registered with the Ministry are permitted to participate in tenders. Additionally, differing

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prequalification procedures exist at the provincial level, which further limit the opportunity for prospective
contractors to participate in tenders.

Irregularities in the public procurement process are common despite a strict legal requirement for audits
and inspections. Despite accusations of malfeasance at a number of ministries, the Cambodian government
has taken little action to investigate irregularities.

Cambodia is neither a signatory to nor an observer of the WTO Agreement on Government Procurement.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Cambodia was not listed in the 2016 Special 301 Report, and public awareness of the dangers of counterfeit
products is gradually increasing. However, the U.S. Government has some concerns regarding the
protection and enforcement of intellectual property rights in Cambodia. Pirated CDs, DVDs, software,
garments, and other copyrighted materials, as well as an array of counterfeit goods, including
pharmaceuticals, are reportedly widely available in Cambodian markets. The rates of signal and cable
piracy also remain high and online sites purveying pirated music, films, eBooks, software, and television
shows are spreading and gaining in popularity. Legislation that would address protection of trade secrets
is under review at the Ministry of Commerce and expected to be sent to the Council of Ministers in 2017.
In addition, legislation on encrypted satellite signals is under the consultation at the Ministry of Posts and
Telecommunications, and legislation on semiconductor layout designs is under review at the Ministry of
Industry and Handicraft. The United States will continue to meet bilaterally with Cambodia under our
bilateral TIFA and other dialogues to urge Cambodia to take steps to improve IPR protection and
enforcement.

Cambodia acceded to the Protocol Relating to the Madrid Agreement Concerning the International
Registration of Marks (the Madrid Protocol) in June 2015. With this accession, an applicant can apply for
a trademark in Cambodia by filing a single international application at a national or regional intellectual
property office of a country or region that is party to the system.

Although legal enforcement of the protection of collective rights is still limited, the Ministry of Culture and
Fine Arts enacted framework regulation for collective management organizations in 2016. Collective
management organizations are formed by copyright owners to manage their rights in common, by
administering licenses, collecting royalties, and enforcing rights on their behalf.

Cambodia is a member of the Patent Cooperation Treaty and became bound to the treaty on December 8,
2016. In addition, in November 2016, Cambodia acceded to the Hague Agreement Concerning the
International Registration of Industrial Designs, which took effect on February 25, 2017. The Ministry of
Industry and Handicrafts Office of Patents and Industrial Design has indicated that it is planning to join the
Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of
Patent Procedure in 2017.

INVESTMENT BARRIERS

Cambodia’s constitution restricts foreign ownership of land. A 2010 law allows foreign ownership of
property above the ground floor of a structure, but stipulates that no more than 70 percent of a building can
be foreign-owned, and that foreigners cannot own property within 30 kilometers of the national border.
Although foreign investors may use land through concessions and renewable leases, the Cambodian
government in 2012 imposed a moratorium on Economic Land Concessions (ELCs), which allowed long-
term leases of state-owned land. The Cambodian government reportedly also has reviewed and revoked
previously granted ELCs on the grounds that the recipients had not complied with the ELC terms and

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conditions. As of February 2016, the Cambodian government reported that a countrywide review of ELCs
resulted in the re-appropriation of over one million hectares of land, but land rights activists dispute the
accuracy of these reports.

Investors also report high electricity and logistics costs, poor infrastructure, lack of human resources, and
corruption as challenges to the investment climate.

BARRIERS TO DIGITAL TRADE

The Ministry of Commerce projects that a draft electronic commerce law will be available for parliamentary
review in 2017. Cambodia is the only ASEAN country that has not yet enacted an electronic commerce
law.

OTHER BARRIERS

Corruption

Both foreign and local businesses have identified corruption in Cambodia as a major obstacle to business
and a deterrent to investment, with Cambodia’s judiciary viewed as one of the country’s most corrupt
institutions. In 2010, Cambodia adopted anti-corruption legislation and established a national Anti-
Corruption Unit to undertake investigations, implement law enforcement measures, and conduct public
outreach. Enforcement, however, remains inconsistent. The Anti-Corruption Unit’s participation in
investigations of political opponents of the ruling party has tarnished its reputation as an unbiased enforcer
of rules.

Cambodia began publishing official fees for public services at the end of 2012 in an effort to combat
“facilitation” payments, but this exercise has yet to be completed. After national elections in July 2013,
certain agencies, such as the Ministry of Commerce and the General Department of Taxation, started
providing online information and services in an effort to reduce paperwork and unofficial fees. In addition,
anti-corruption information has been incorporated into the national high school curriculum, and civil
servants’ salaries are disbursed through commercial banks. Although these changes have improved
Cambodia’s scoring on Transparency International’s Corruption Perception Index for 2015, the country
still ranked 150th out of 167 countries.

Judicial and Legal Framework

Cambodia’s legal framework is incomplete and its laws are unevenly enforced. While the National
Assembly has passed numerous trade and investment-related laws, including a law on commercial
arbitration, many business-related laws are still pending. A 2014 Law on Court Structures established a
Commercial Court with first-instance jurisdiction over all commercial matters, including insolvency cases,
and a Commercial Chambers to hear all appeals arising out of the Commercial Court; neither entity is
formed or operating, however.

Smuggling

The smuggling (illegal importation) of products, such as cosmetics, textiles, wood, sugar, vehicles, fuel,
soft drinks, livestock, crops, and cigarettes, remains widespread, and the Cambodian government has
worked to address this issue. It has issued numerous orders to stop smuggling and has created various anti-
smuggling units within government agencies, including the General Department of Customs and Excise,
and has established a mechanism within this department to accept and act upon complaints from the private
sector and foreign governments. Enforcement efforts, however, remain weak and inconsistent.

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CANADA
TRADE SUMMARY

The U.S. goods trade deficit with Canada was $11.2 billion in 2016, a 27.7 decrease ($4.3 billion) over
2015. U.S. goods exports to Canada were $266.8 billion, down 4.9 percent ($13.8 billion) from the previous
year. Corresponding U.S. imports from Canada were $278.1 billion, down 6.1 percent. Canada was the
United States' largest goods export market in 2016.

U.S. exports of services to Canada were an estimated $56.4 billion in 2015 (latest data available) and U.S.
imports were $29.0 billion. Sales of services in Canada by majority U.S.-owned affiliates were $134.5
billion in 2014 (latest data available), while sales of services in the United States by majority Canada-owned
firms were $89.0 billion.

U.S. foreign direct investment in Canada (stock) was $352.9 billion in 2015 (latest data available), a 1.5
percent decrease from 2014. U.S. direct investment in Canada is led by manufacturing, nonbank holding
companies, and finance/insurance.

Trade Agreements

North American Free Trade Agreement – The North American Free Trade Agreement (NAFTA), signed
by the United States, Canada, and Mexico (the Parties), entered into force on January 1, 1994. At the same
time, the United States suspended the United States-Canada Free Trade Agreement, which had entered into
force in 1989. Under the NAFTA, the Parties progressively eliminated tariffs and nontariff barriers to trade
in goods among them, provided improved access for services, established strong rules on investment, and
strengthened protection of intellectual property rights. After signing the NAFTA, the Parties concluded
supplemental agreements on labor and the environment.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANTIARY BARRIERS

Technical Barriers to Trade

Restrictions on U.S. Seeds Exports

For many major field crops, Canada’s Seeds Act generally prohibits the sale or advertising for sale in
Canada, or import into Canada, of seeds of a variety that is not registered. The purpose of variety
registration is to provide government oversight to ensure that health and safety requirements are met and
that information related to the identity of the variety is available to regulators in order to prevent fraud.
However, there are concerns that the variety registration system is slow and cumbersome. The United
States is consulting with Canada on steps to modernize and streamline Canada’s variety registration system.

Cheese Compositional Standards

Canada’s regulations on compositional standards for cheese limit the amount of dry milk protein
concentrate (MPC) that can be used in cheese making, reducing the demand for U.S. dry MPCs. The United
States continues to monitor the situation with these regulations for any changes that could have a further
adverse impact on U.S. dairy product exports.

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IMPORT POLICIES

Agricultural Supply Management

Canada uses supply-management systems to regulate its dairy, chicken, turkey, and egg
industries. Canada’s supply-management regime involves production quotas, producer marketing boards
to regulate price and supply, and tariff-rate quotas (TRQs) for imports. Canada’s supply-management
regime severely limits the ability of U.S. producers to increase exports to Canada above TRQ levels and
inflates the prices Canadians pay for dairy and poultry products. Under the current system, U.S. imports
above quota levels are subject to prohibitively high tariffs (e.g., 245 percent for cheese and 298 percent for
butter).

The United States remains concerned about potential Canadian actions that would further limit U.S. exports
to the Canadian dairy market. For example, the United States continues to monitor closely any tariff
reclassifications of dairy products to ensure that U.S. market access is not negatively affected.

Milk Classes

Canada provides milk components at discounted prices to domestic processors under the Special Milk Class
Permit Program (SMCPP). These prices are “discounted” in the sense that they are lower than Canadian
support prices and reflect U.S. or world prices. The SMCPP is designed to help Canadian processed
products compete against imports in Canada and in foreign markets. Effective May 1, 2016, the Canadian
Milk Supply Management Committee (CMSMC) modified an existing national milk class, Class 4(m), to
extend discount pricing to a wider range of Canadian dairy ingredients, including liquid dairy ingredients
(an action taken by CMSMC as an agency of Canada’s government). An agreement reached between
Canadian dairy farmers and processors in July 2016 included a new national milk class (Class 7) that
extends discount pricing to an even wider range of Canadian dairy ingredients. Provincial milk marketing
boards (agencies of Canada’s governments) began implementing Class 7 in February 2017. Both Class 7
and the modification to Class 4(m) are aimed at undercutting the price and displacing current sales of U.S.
dairy ingredients.

The United States has raised its serious concerns with Class 7 and the modification to Class 4(m) (and Class
6—see below) with Canada bilaterally and at the WTO Committee on Agriculture, and is examining these
milk classes closely.

Ontario Milk Class 6

Ontario introduced a provincial Ingredient Strategy and implemented a new milk class on April 1, 2016,
(Class 6) that provides Ontario processors skim milk solids at discounted prices, aiming to undercut the
price and displace current sales of U.S. dairy ingredients.

Restrictions on U.S. Grain Exports

A number of grain sector policies limit the ability of U.S. wheat and barley exporters to receive a premium
grade (a grade that indicates use for milling purposes as opposed to grain for feed use) in Canada, including
the provisions of the Canada Grain Act and Seeds Act.

Under the Canada Grain Act, the inspection certificate for grain grown outside Canada, including U.S.
grain, can only state the country of origin for that grain and not issue a grade. Also, the Canada Grain Act
directs the Canadian Grain Commission to “establish grades and grade names for any kind of western grain

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and eastern grain and establish the specifications for those grades” by regulation. The explicit division
between “eastern grain” and “western grain,” are defined in the Canada Grain Act as “grain grown in the
[Eastern or Western] Division,” defined geographically within Canada, further underscores that grading is
only available to Canadian grains. Under the Canada Grain Act, only grain of varieties registered under
Canada’s Seeds Act may receive a grade higher than the lowest grade allowable in each class

U.S. wheat and barley can be sold without a grade directly to interested Canadian purchasers at prices based
on contract specifications. However, contract-based sales are a relatively small proportion of all sales in
Canada. Most sales occur through the bulk handling system in grain elevators. Canadian grain elevators
offer economic efficiencies by collecting and storing grain from many small-volume growers, giving them
the ability to fulfill larger contracts and to demand higher prices for that ability.

The barriers to assigning U.S. grain a premium grade encourages both a price discounting of high-quality
U.S. grain appropriate for milling use and de facto segregation at the Canadian elevator.

The United States will continue to press the Canadian government to move forward swiftly with legislative
and any other necessary changes that would enable grain grown outside Canada to receive a premium grade
and changes to its varietal registration system.

Personal Duty Exemption

Canada’s personal duty exemption for residents who bring back goods from short trips outside of its borders
is less generous than the U.S. personal duty exemption. Canadians who spend more than 24 hours outside
of Canada can bring back C$200 worth of goods duty free, or C$800 for trips over 48 hours. Canada
provides no duty exemption for returning residents who have been out of Canada for fewer than 24 hours.
U.S. retailers have raised concerns about the effect of this policy on purchases by Canadians on short trips
to the United States.

De Minimis Threshold

De minimis refers to the maximum threshold below which no duty or tax is charged on imported items.
Canada’s de minimis threshold remains at C$20, which is the lowest among industrialized nations. By
comparison, in March 2016, the United States raised its de minimis threshold from $200 to $800. Some
stakeholders, particularly shipping companies and online retailers, maintain that Canada’s low de minimis
threshold creates an unnecessary trade barrier.

Wine, Beer, and Spirits

Canadians face high provincial taxes on personal imports of U.S. wines and spirits upon their return to
Canada from the United States. This inhibits Canadians from purchasing U.S. alcoholic beverages while
in the United States.

Most Canadian provinces restrict the sale of wine, beer, and spirits through province-run liquor control
boards, which are the sole authorized sellers of wine, beer, and spirits in those provinces. Market access
barriers in those provinces greatly hamper exports of U.S. wine, beer, and spirits to Canada. These barriers
include cost-of-service mark-ups, restrictions on listings (products that the liquor board will sell), reference
prices (either maximum prices the liquor board is willing to pay or prices below which imported products
may not be sold), labeling requirements, discounting policies (requirements that suppliers offer rebates or
reduce their prices to meet sales targets), and distribution policies.

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British Columbia

In January 2017, the United States requested WTO dispute settlement consultations on British Columbia
measures regarding the sale of wine in grocery stores. These measures allow only British Columbia wines
to be sold on grocery store shelves, while imported wine in grocery stores can only be sold in a “store within
a store” under controlled access with separate case registers, discriminating against the sale of U.S. wine in
grocery stores. These regulations appear to breach Canada’s WTO commitments and have adversely
impacted U.S. wine producers.

Ontario

Previously, grocery stores in Ontario were not permitted to sell wine. Under Regulation 232/16, issued in
June 2016, grocery stores are permitted to sell wine under certain conditions, including ones related to the
size of the winery producing the wine, the size of wineries affiliated with the producing winery, the country
where the grapes were grown, and whether a wine meets the definition of a “quality assurance wine.”
Working with U.S. industry, the United States is analyzing these conditions for sale in grocery stores as
well as other developments in Ontario to help ensure U.S. wines are not disadvantaged.

Quebec

Quebec’s new measure raises concerns that it may discriminate against imported wines. The measure may
advantage Quebec craft wine producers by allowing them to bypass the liquor board, Société des alcools
du Québec (SAQ), and therefore also the liquor board mark-ups, to sell directly to grocery stores.

DOMESTIC SUPPORT MEASURES

Aerospace Sector Support

Canada released a comprehensive review of its aerospace and space programs in November 2012. The
review offered 17 recommendations intended to strengthen the competitiveness of Canada’s aerospace and
space industries and guide future government involvement in both sectors. Recommendations called on
the Canadian government to create a program to support large-scale aerospace technology demonstration,
co-fund a Canada-wide initiative to facilitate communication among aerospace companies and the academic
community, implement a full cost recovery model for aircraft safety certification, support aerospace worker
training, and co-fund aerospace training infrastructure.

The review also recommended that the Canadian government continue funding the Strategic Aerospace and
Defense Initiative (SADI). The SADI provides repayable support for strategic industrial research and pre-
competitive development projects in the aerospace, defense, space, and security industries, and has
authorized C$1.32 billion to fund 33 advanced research and development projects since its establishment
in 2007.

The Canadian federal government and the Quebec provincial government announced aid to the Bombardier
aircraft company in 2008 to support research and development related to the launch of the new class of
Bombardier CSeries commercial aircraft. The federal government provided C$350 million in financing for
the CSeries aircraft, and the government of Quebec provided another C$118 million. The federal
government and Quebec government also are offering commercial loans to potential buyers of the aircraft.
In February 2017, the government of Canada announced $284 million assistance to Bombardier. The
federal government will make a direct $97 million repayable contribution to Bombardier’s Montreal-based
CSeries program, and a $187 million loan to Bombardier’s Toronto-based Global 7000 program using

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Canada’s Strategic Aerospace and Defense Initiative, making it one of the largest loans ever made with the
SADI program. In June 2016, Bombardier reached a final agreement with the Quebec government for the
province to buy a 49.5 percent equity share in a CSeries joint-venture for $1 billion, with a commitment by
the company to maintain aircraft manufacturing operations in Quebec for a period of 20 years. Under the
agreement, Bombardier received two $500 million payments from the Quebec government, the first on June
30 and the second on September 1.

In February 2017, Brazil requested consultations in the World Trade Organization alleging that Canadian
federal and provincial subsidies provided to Bombardier are inconsistent with Canada’s international trade
obligations. The United States will join these consultations as a third party.

The United States will continue to monitor carefully any government financing and support of the CSeries
aircraft.

While Parties to the February 2011 OECD Sector Understanding on Export Credits for Civil Aircraft
implement the revised agreement, the United States also has expressed concern over the possible use of
export credit financing from Export Development Canada to support commercial sales of Bombardier
CSeries aircraft in the U.S. market.

Canada has committed to spend approximately C$25 million from 2009 to 2018 to support the Green
Aviation Research and Development Network and provide additional funding to the National Research
Council’s Industrial Research Assistance Program to support research and development in Canada’s
aerospace sector. Canada’s federal government announced in October 2016 that a consortium of companies
and academic institutions, led by Bombardier, will receive up to C$54 million to develop “the next
generation of aircraft technologies.”

GOVERNMENT PROCUREMENT

Canada has made commitments to open its government procurement to U.S. suppliers under the WTO
Agreement on Government Procurement (GPA) and NAFTA. The current agreements provide U.S.
businesses with access to procurement conducted by most Canadian federal departments and a large number
of provincial entities, and to procurement by some but not all of Canada’s Crown Corporations. The 2010
United States-Canada Agreement on Government Procurement includes market access obligations which
have either expired or are captured under the revised GPA.

Hydro-Québec, a provincial-level Crown Corporation in Quebec, maintains a local (Quebec) content


requirement in its procurements for wind energy projects, and these local content requirements can pose
hurdles for U.S. companies in the renewable energy sector in Canada.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Protection and enforcement of intellectual property rights (IPR) is a continuing priority in bilateral trade
relations with Canada. In 2013, the U.S. Government moved Canada from the Priority Watch List in the
Special 301 Report to the Watch List in light of steps taken to improve copyright protection through the
Copyright Modernization Act. The United States welcomed Canada’s amendment to its Copyright Act in
June 2015 that extends protection for sound recordings from 50 to 70 years from the date of recording.
With respect to pharmaceuticals, the United States continues to have concerns about the application of
patent utility standards that Canadian courts have adopted. The United States has concerns about due
process and transparency of the geographical indications system in Canada, including commitments Canada

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took under the Canada-EU Comprehensive Economic and Trade Agreement (CETA) on October 30,
2016.

On IPR enforcement, Canada’s Parliament passed the Combating Counterfeit Products Act on December
9, 2014, but the United States is disappointed that Canada did not amend this legislation to allow for
inspection of in-transit counterfeit trademark goods and pirated copyright goods entering Canada destined
for the United States. Additionally, there continue to be questions about the effectiveness of Canada’s
copyright safe harbor system. The United States continues to work with Canada to address IPR issues.

SERVICES BARRIERS

Telecommunications

Canada maintains a 46.7 percent limit on foreign ownership of certain suppliers of facilities-based
telecommunication services (i.e., those with more than 10 percent market share), except for submarine cable
operations. This is one of the most restrictive regimes among developed countries. Canada also requires
that Canadian citizens comprise at least 80 percent of the membership of boards of directors of facilities-
based telecommunication service suppliers. As a consequence of these restrictions on foreign ownership,
the role of U.S. firms in the Canadian market as wholly U.S.-owned operators has been limited to that of
resellers, dependent on Canadian facilities-based operators for critical services and component parts.

Canadian Content in Broadcasting

The Canadian Radio-television and Telecommunications Commission (CRTC) imposes quotas that
determine both the minimum Canadian programming expenditure (CPE) and the minimum amount of
Canadian programming that licensed Canadian broadcasters must carry (Exhibition Quota). Large English-
language private broadcaster groups have a CPE obligation equal to 30 percent of the group’s gross
revenues from their conventional signals, specialty, and pay services.

In March 2015, the CRTC announced that it will eliminate the overall 55 percent daytime Canadian-content
quota. Nonetheless, the CRTC is maintaining the Exhibition Quota for primetime at 50 percent from 6 p.m.
to 11 p.m. Specialty services and pay television services that are not part of a large English-language
private broadcasting group are now subject to a 35 percent requirement throughout the day, with no prime
time quota.

For cable television and direct-to-home broadcast services, more than 50 percent of the channels received
by subscribers must be Canadian channels. Non-Canadian channels must be pre-approved (“listed”) by the
CRTC. Upon an appeal from a Canadian licensee, the CRTC may determine that a non-Canadian channel
competes with a Canadian pay or specialty service, in which case the CRTC may either remove the non-
Canadian channel from the list (thereby revoking approval to supply the service) or shift the channel into a
less competitive location on the channel dial.

The CRTC also requires that 35 percent of popular musical selections broadcast on the radio qualify as
“Canadian” under a Canadian government-determined point system.

In September 2015, the CRTC released a new Wholesale Code that governs certain commercial
arrangements between broadcasting distribution undertakings, programming undertakings, and exempt
digital media undertakings. A proposal in the new Wholesale Code to apply a code of conduct designed
for vertically-integrated suppliers in Canada (i.e., suppliers that own infrastructure and programming) to
foreign programming suppliers (who by definition cannot be vertically integrated, as foreign suppliers are

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prohibited from owning video distribution infrastructure in Canada) has raised significant stakeholder
concerns. Additionally, stakeholders have expressed concern related to provisions in the Wholesale Code
that affect U.S. broadcast signals and services within Canada. The Wholesale Code came into force January
22, 2016.

U.S. suppliers of programming also have raised concerns about a CRTC policy not to permit simultaneous
substitution of advertising for the Super Bowl, beginning in the 2016-2017 season. Simultaneous
substitution is a process by which broadcasters can insert local advertising into a program, overriding the
original U.S. advertising and providing the Canadian broadcaster an independent source of revenue. U.S.
suppliers of programming believe that the price Canadian networks pay for Super Bowl rights is determined
by the value of advertising they can sell in Canada, and that the CRTC’s decision reduces the value of their
programming. On August 19, 2016, the CRTC issued a formal rule preventing simultaneous substitution
during the Super Bowl by a major Canadian telecommunication company, which has exclusive rights to air
the Super Bowl in Canada. The United States is highly concerned about this policy.

INVESTMENT BARRIERS

The Investment Canada Act (ICA) has regulated foreign investment in Canada since 1985. Foreign
investors must notify the government of Canada prior to the direct or indirect acquisition of an existing
Canadian business above a threshold value. Canada amended the ICA in 2009 to raise the threshold for
Canada’s “net benefit” review of foreign investment. The threshold currently stands at C$600 million and
had been scheduled to increase to C$1 billion in 2019. The government announced November 1, 2016 that
the threshold for review will be raised to C$1 billion in 2017, two years sooner than originally planned
Innovation, Science and Economic Development Canada is the government’s reviewing authority for most
investments, except for those related to cultural industries, which come under the jurisdiction of the
Department of Heritage Canada. Foreign acquisition proposals under government review must demonstrate
a “net benefit” to Canada to be approved. The Industry Minister may disclose publicly that an investment
proposal does not satisfy the net benefit test and publicly explain the reasons for denying the investment,
so long as the explanation will not do harm to the Canadian business or the foreign investor.

Under the ICA, the Industry Minister can make investment approval contingent upon meeting certain
conditions such as minimum levels of employment and research and development. Since the global
economic slowdown in 2009, some foreign investors in Canada have had difficulty meeting these
conditions.

Canada administers supplemental guidelines for investment by foreign SOEs. Those guidelines include a
stipulation that future SOE bids to acquire control of a Canadian oil-sands business will be approved on an
“exceptional basis only.”

BARRIERS TO DIGITAL TRADE

Data Localization

The Canadian federal government is consolidating information and communication technology (ICT)
services across 63 Canadian federal government email systems under a single platform. The tender for this
project cited national security as a reason for requiring the contracted company to keep data in Canada.
This requirement effectively precludes U.S.-based “cloud” computing suppliers from participating in the
procurement process, unless they replicate data storage and processing facilities in Canada. The public
sector represents approximately one third of the Canadian economy and is a major consumer of U.S.

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services, particularly in the information and communication technology sector. The requirement, therefore,
is likely to have significant impact on U.S. exports of a wide array of products and services.

British Columbia and Nova Scotia each have laws that mandate that personal information in the custody of
a public body must be stored and accessed only in Canada unless one of a few limited exceptions applies.
These laws prevent public bodies, such as primary and secondary schools, universities, hospitals,
government-owned utilities, and public agencies, from using U.S. services when there is a possibility that
personal information would be stored in or accessed from the United States.

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CHILE
TRADE SUMMARY

The U.S. goods trade surplus with Chile was $4.1 billion in 2016, a 37.9 percent decrease ($2.5 billion)
over 2015. U.S. goods exports to Chile were $12.9 billion, down 16.2 percent ($2.5 billion) from the
previous year. Corresponding U.S. imports from Chile were $8.8 billion, up 0.3 percent. Chile was the
United States' 23rd largest goods export market in 2016.

U.S. exports of services to Chile were an estimated $4.0 billion in 2015 (latest data available) and U.S.
imports were $1.6 billion. Sales of services in Chile by majority U.S.-owned affiliates were $9.6 billion in
2014 (latest data available), while sales of services in the United States by majority Chile-owned firms were
$180 million.

U.S. foreign direct investment (FDI) in Chile (stock) was $27.3 billion in 2015 (latest data available), a 1.0
percent increase from 2014. U.S. direct investment in Chile is led by mining, finance/insurance, and
manufacturing.

THE UNITED STATES-CHILE FREE TRADE AGREEMENT

The FTA entered into force on January 1, 2004. Pursuant to the FTA, Chile immediately eliminated tariffs
on over 85 percent of bilateral trade in goods. All duties for U.S. goods entering Chile were eliminated on
January 1, 2015. Since the FTA’s entry into force, trade between the United States and Chile more than
tripled, making the United States Chile’s second-largest trading partner (after China, which is a significant
importer of Chile’s copper).

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANTIARY BARRIERS

Technical Barriers to Trade

Nutritional Labeling

On June 26, 2016, Decree 13, the implementing regulation to the Law on Food Nutritional Composition
and its Advertising (Number 20.606, published in June 2012), came into effect. The regulation addresses
the labeling of the nutritional composition and the advertising of certain food products. It requires warning
labels on certain prepackaged food products if they exceed specified thresholds of sodium, sugar, energy
(calories), and saturated fats. Specifically, the regulation requires food products that exceed the thresholds
to bear a black octagonal “stop” sign for each category with the words “High in” salt, sugar, energy, or
saturated fat. Foods exceeding thresholds in more than one category would require multiple stop signs.
The thresholds are established based on a 100 gram or 100 ml serving and are not calibrated to the actual
serving size of the package of food being sold.

Additionally, the regulation prohibits the use of images deemed to constitute “advertising to children” under
age 14 for any product requiring one or more “stop” signs. Implementation of Decree 13, particularly the
interpretation of registered trademarks on product packaging as advertising, has been inconsistent. The
Ministry of Health has prevented products from entering the Chilean market on the basis that images on
product packaging, including registered trademarks, is within the ambit of the decree and constitutes

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advertising to children. These actions have resulted in delays, shortages, and repackaging that have cost
U.S. firms millions of dollars in lost sales and other expenses.

The United States has raised concerns about this issue with Chile within the framework of the WTO
Committee on Technical Barriers to Trade (WTO TBT Committee), in the Free Trade Commission and
TBT Committee established under the FTA, and other fora. The United States will continue to raise these
issues with Chile.

Cell Phone Labeling and Emergency Warning Alerts

A new “norm” for cellphone labeling was announced by Chile’s Ministry of Transportation and
Telecommunications (Subtel) on June 16, 2016. This requirement is expected to enter into force in the first
half of 2017. Labels will be required to indicate whether cellphones or mobile devices are suitable for 2G,
3G, or 4G. Authorities have not officially clarified who will bear the cost of labeling or if stickers are
expected to be applied in Chile or at point of origin. For a 4G phone certification, the device must support
the bands 700 MHz, 2600 MHz and Advanced Wireless Services (AWS). In Chile, some mobile phone
companies currently pay an extra cost to unlock the AWS band. Thus if a device has 4G capability but the
AWS band is not accessible it will be labeled instead as 2G or 3G. We have asked Chile to notify this
measure to the WTO.

In June 2016, Subtel published External Resolution 1474, which calls for a mandatory and universal
emergency alert (vibration) to be included in all cellphone or mobile devices. The Resolution is expected
to enter into force in March 2017. Subtel has not defined the list of certifying agents, clarified the technical
guidelines for the new emergency alert system, nor enumerated a plan for transition of compatibility
requirements with existing inventory in-country.

Sanitary and Phytosanitary Barriers

Salmonid Products Ban

In 2010, Chile’s Ministry of Fisheries, SERNAPESCA, suspended imports of salmonid species from all
countries, including the United States, due to Chile’s revised import regulations for aquatic animals,
including salmonid eggs. Under the new regulations, U.S. producers cannot export salmonid eggs to Chile
until SERNAPESCA completes a risk analysis and an on-site audit of the USDA’s oversight of aquatic
animal exports and U.S. salmonid egg production sites. An audit of USDA’s oversight of production sites
in the states of Washington and Maine was conducted in 2011. USDA and SERNAPESCA have continued
technical discussions. The United States and Chile agreed, through an exchange of several letters in late
2014 and again in 2015, to steps to advance Chile’s consideration of a resumption of imports from the states
of Washington and Maine. In November 2016 USDA’s Animal and Plant Health Inspection Service
(APHIS) sent additional technical information requested by SERNAPESCA. APHIS is waiting for a formal
response from SERNAPESCA.

IMPORT POLICIES

Tariffs and Taxes

Chile has one of the most open trade regimes in the world with a uniform MFN applied tariff rate of 6
percent for nearly all goods. Certain goods carry unique tariffs, such as tobacco products (nearly 60 percent)
and pyrotechnics (50 percent). A surcharge is applied to imports of luxury goods, including new cars.
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Many capital goods may be imported with an applied tariff rate of zero percent under specific conditions.
Pursuant to the FTA, as of January 1, 2015, all originating U.S. goods enter Chile duty free.

Importers must pay a 19 percent value-added tax (VAT) calculated based on the cost, insurance, freight
(CIF) value of the import. The VAT is also applied to nearly all domestically produced goods and services.
Certain products (regardless of origin) are subject to additional taxes, such as an 18 percent tax on sugared
non-alcoholic beverages, a 20 percent tax on beers and wines, and a 31.5 percent tax on distilled alcoholic
beverages. Cigarettes are subject to a 30 percent ad valorem tax plus approximately $0.07 per cigarette;
other tobacco products have taxes between 52.6 percent and 59.7 percent.

Pursuant to changes in Chile’s tax law, foreign shareholders must pay a 35 percent tax on capital gains that
are recognized in connection with the sale or other transfer of Chilean shares on or after January 1, 2017.
This tax change applies to capital gains from the sale of shares in Chilean companies, regardless of their
participation in the stock exchange (Bolsa de Comercio). Such capital gains were previously subject to tax
at a rate of 20 or 35 percent, depending on certain requirements. Under the new rules, the rate is 35 percent
on net gain in all cases. Under the U.S. – Chile dual tax treaty, which has not yet been ratified by the U.S.
Senate, certain companies would be exempt from the 35 percent tax. The tax treaty would also reduce
withholding tax rates on royalties, dividends, interest payments, and capital gains. Further, the treaty would
exempt U.S. engineering, financial services, and other service companies from a 35 percent withholding
tax, and U.S.-headquartered banks and insurance companies would be subject to a reduced 4 percent
withholding tax rate on interest earned in Chile.

Import Controls

There are virtually no restrictions on the types or amounts of goods that can be imported into Chile, nor are
there any requirements to use the official foreign exchange market. However, importers and exporters must
report their import and export transactions to the Central Bank. Commercial banks may sell foreign
currency to any importer to cover the price of imported goods and related expenses as well as to pay interest
and other financing expenses that are authorized in the import report. Licensing requirements appear to be
used primarily for statistical purposes; legislation requires that most import licenses be granted as a routine
procedure. More rigorous licensing procedures apply for certain products such as pharmaceuticals and
weapons.

Nontariff Barriers

Companies are required to contract the services of a customs broker when importing or exporting goods
valued at over $1,000 free on board (FOB). Companies established in any of Chile’s free trade zones are
exempt from the obligation to use a customs broker when importing or exporting goods, and noncommercial
shipments valued at less than $500 also are exempted. Chile’s two free trade zones are the Free Zone of
Iquique in the northern tip of Chile and the Free Zone of Punta Arenas in the southern tip.

EXPORT POLICIES

Chile currently provides a simplified duty drawback program for nontraditional exports (except in cases
where a free trade agreement provides otherwise). The program reimburses a firm up to three percent of
the value of the exported good if at least 50 percent of that good consists of imported raw materials. Chile
publishes an annual list of products excluded from this policy. In accordance with its commitments under
the FTA, as of January 1, 2015, Chile eliminated the use of duty drawback and duty deferral for imports
that are incorporated into any good exported to the United States.
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Under Chile’s VAT reimbursement policy, which is distinct from its drawback program, exporters have the
right to recoup the VAT paid on goods and services intended for export activities. Any company that
invests in a project in which production will be for export is eligible for VAT reimbursement. Exporters of
services can only benefit from the VAT reimbursement policy when the services are rendered to people or
companies with no Chilean residency. Also, the service must qualify as an export through a resolution
issued by the Chilean customs authority.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Chile remained on the Priority Watch List in the 2016 Special 301 Report due to weaknesses in the adequacy
and effectiveness of Chile’s protection and enforcement of intellectual property rights. Specific obstacles
include lack of protection against the unlawful circumvention of technological protection measures, lack of
effective remedies to address satellite and cable TV piracy, failure to ratify the (1991) Act of the
International Convention for the Protection of New Varieties of Plants, and an ineffective Internet Service
Provider liability regime. The 2016 Report also urged Chile to address challenges in reviewing patent
issues in connection with applications to market pharmaceutical products and to provide adequate
protection against unfair commercial use of undisclosed test or other data generated to obtain marketing
approvals for pharmaceutical products. The United States continues to work with Chile to address these
and other IP issues.

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CHINA
TRADE SUMMARY

The U.S. goods trade deficit with China was $347.0 billion in 2016, a 5.5 percent decrease ($20.1 billion)
over 2015. U.S. goods exports to China were $115.8 billion, down 0.3 percent ($297 million) from the
previous year. Corresponding U.S. imports from China were $462.8 billion, down 4.2 percent. China was
the United States' 3rd largest goods export market in 2016.

U.S. exports of services to China were an estimated $48.4 billion in 2015 (latest data available) and U.S.
imports were $15.1 billion. Sales of services in China by majority U.S.-owned affiliates were $54.9 billion
in 2014 (latest data available), while sales of services in the United States by majority China-owned firms
were $4.8 billion.

U.S. foreign direct investment in China (stock) was $74.6 billion in 2015 (latest data available), a 10.5
percent increase from 2014. U.S. direct investment in China is led by manufacturing, wholesale trade, and
depository institutions.

KEY TRADE BARRIERS

The United States continues to pursue vigorous and expanded bilateral and multilateral engagement to
increase the benefits that U.S. businesses, workers, farmers, ranchers, service providers and consumers
derive from trade and economic ties with China. In an effort to remove Chinese barriers blocking or
impeding U.S. exports and investment, the United States uses outcome-oriented dialogue at all levels of
engagement with China, while also taking concrete steps to enforce U.S. rights at the WTO as appropriate.
At present, China’s trade policies and practices in several specific areas cause particular concern for the
United States and U.S. stakeholders. The key concerns in each of these areas are summarized below. For
more detailed information on these concerns, see the 2016 USTR Report to Congress on China’s WTO
Compliance, issued on January 9, 2017, at https://ustr.gov/sites/default/files/2016-China-Report-to-
Congress.pdf. The USTR Report to Congress on China’s WTO Compliance provides comprehensive
information on the status of the trade and investment commitments that China has made through the United
States-China Joint Commission on Commerce and Trade (JCCT) and the United States-China Strategic and
Economic Dialogue (S&ED).

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Overview

After its accession to the WTO, China undertook a wide-ranging revision of its framework of laws and
regulations aimed at protecting the IPR of domestic and foreign rights holders, as required by the WTO
Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement). Currently,
China is in the midst of a further round of revisions to these laws and regulations, as it seeks to make them
more effective. Nevertheless, inadequacies in China’s IPR protection and enforcement regime continue to
present serious barriers to U.S. exports and investment. As a result, China was again placed on the Priority
Watch List in USTR’s 2016 Special 301 report. In addition, in December 2016, USTR announced the
results of its 2016 Out-of-Cycle Review of Notorious Markets, which identifies online and physical markets
that exemplify key challenges in the global struggle against piracy and counterfeiting. Several Chinese
markets were among those named as notorious markets.
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Trade Secrets

The protection and enforcement of trade secrets in China is a serious problem and has been the subject of
high-profile attention and engagement in recent years. Thefts of trade secrets for the benefit of Chinese
companies have occurred both within China and outside of China. Offenders in many cases continue to
operate with impunity. Most troubling are reports that actors affiliated with the Chinese government and
the Chinese military have infiltrated the computer systems of U.S. companies, stealing terabytes of data,
including the companies’ intellectual property (IP), for the purpose of providing commercial advantages to
Chinese enterprises. To help address these challenges, the United States previously has won commitments
from China not to condone this type of state-sponsored misappropriation of trade secrets and has urged
China to make certain key amendments to its trade secrets-related laws and regulations, particularly with
regard to a draft revision of the Anti-unfair Competition Law. China also has committed to issue judicial
guidance to strengthen its trade secrets regime. The United States also has urged China to take actions to
address this problem across the range of state-sponsored actors and to promote public awareness of this
issue. In 2016, China circulated for public comment a draft of proposed revisions to the Anti-unfair
Competition Law, but it included only minor changes to the provisions on trade secrets and therefore did
not address the full range of U.S. concerns in this area. At the November 2016 JCCT meeting, China
confirmed that it is strengthening its trade secrets regime and plans to bolster several areas of importance,
including the availability of evidence preservation orders and damages based on market value as well as
the issuance of a judicial interpretation on preliminary injunctions and other matters.

Bad Faith Trademark Registration

Of particular and growing concern is the continuing registration of trademarks in bad faith. Although China
has taken some steps to address this problem, U.S. companies across industry sectors continue to face
Chinese applicants registering their marks and “holding them for ransom” or seeking to establish a business
building off of U.S. companies’ global reputations. At the November 2016 JCCT meeting, China publicly
noted the harm that may be caused by bad faith trademarks and confirmed that it is taking further steps to
combat bad faith trademark filings.

Pharmaceuticals

The United States continues to engage China on a range of patent and technology transfer concerns relating
to pharmaceuticals. At the December 2013 JCCT meeting, China committed to permit supplemental data
supporting pharmaceutical patent applications. However, to date, it appears that China has only
implemented that commitment in part. In October 2016, China circulated for public comment proposed
revisions to its Patent Examination Guidelines, which included a proposed revision that would clarify that
examiners must consider in their examination process certain post-filing supplemental data. If
implemented, this proposed revision would represent an important step toward the supplemental data
practice in the United States and other jurisdictions.

Meanwhile, many other concerns remain, including the need to provide effective protection against unfair
commercial use of undisclosed test or other data generated to obtain marketing approval for pharmaceutical
products, and to provide effective enforcement against infringement of pharmaceutical patents.
Additionally, a backlogged drug regulatory approval system presents market access and patient access
concerns. At the December 2014 JCCT meeting, China committed to significantly reduce time-to-market
for innovative pharmaceutical products through streamlined processes and additional funding and
personnel.

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A serious concern that first arose in 2015 stems from China’s proposals in the pharmaceuticals sector that
seek to promote government-directed indigenous innovation and technology transfer through the provision
of regulatory preferences. For example, a State Council measure issued in final form without having been
made available for public comment calls for expedited regulatory approval to be granted to innovative new
drugs where the applicant’s manufacturing capacity has been shifted to China. The United States is pressing
China to reconsider this approach.

In April 2016, the China Food and Drug Administration (CFDA) issued a draft measure that effectively
would require drug manufacturers to commit to price concessions as a pre-condition for marketing approval
of new drugs. Given its inconsistency with international science-based regulatory practices, which are
based on safety, efficacy and quality, the draft measure elicited serious concerns from the United States and
U.S. industry. Subsequently, at the November 2016 JCCT meeting, China agreed not to link a pricing
commitment to drug registration evaluation and approval. In addition, China agreed not to require any
specific pricing information when implementing the final measure.

Online Piracy

Online piracy continues on a large scale in China, affecting a wide range of industries, including those
involved in distributing legitimate music, motion pictures, books and journals, software and video games.
While increased enforcement activities have helped stem the flow of online sales of some pirated offerings,
much more sustained action and attention is needed to make a more meaningful difference for content
creators and rights holders, particularly small and medium-sized enterprises. At the same time, the United
States has urged China to consider ways to create a broader policy environment that helps foster the growth
of healthy markets for licensed and legitimate content. The United States also has urged China to revise
existing rules that have proven to be counterproductive. For example, new rules on the review of foreign
television content present a serious concern for the continued viability of licensed streaming of foreign
television content via online platforms, as these rules are disrupting legitimate commerce while
inadvertently creating conditions that allow for pirated content to displace legitimate content online.
Similarly, quotas on foreign video content available on online platforms (limited, per platform, to 30 percent
of the previous year’s expenditure on content) limit distribution options and drive consumers to illegitimate
sites to access popular content.

Counterfeit Goods

Although rights holders report increased enforcement efforts by Chinese government authorities,
counterfeiting in China, affecting a wide range of goods, remains widespread. One area of particular U.S.
concern involves medications. Despite sustained engagement by the United States, China still needs to
improve its regulation of the manufacture of active pharmaceutical ingredients to prevent their use in
counterfeit and substandard medications. At the July 2014 S&ED meeting, China agreed to develop and
seriously consider amendments to the Drug Administration Law that will require regulatory control of the
manufacturers of bulk chemicals that can be used as active pharmaceutical ingredients. At the June 2015
S&ED meeting, China further agreed to publish revisions to the Drug Administration Law in draft form for
public comment and to take into account the opinions of the United States and other relevant stakeholders.
To date, China has not amended this law, reportedly due to the prioritization of reforming the drug
regulatory system to reduce the drug approval lag.

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INDUSTRIAL POLICIES

Overview

China continued to pursue a wide array of industrial policies in 2016 that seek to limit market access for
imported goods, foreign manufacturers and foreign service suppliers, while offering substantial government
guidance, resources and regulatory support to Chinese industries. The principal beneficiaries of these
constantly evolving policies are China’s state-owned enterprises, as well as other favored domestic
companies attempting to move up the economic value chain.

Secure and Controllable ICT Policies

In 2015 and 2016, global concerns heightened over a series of Chinese measures that would impose severe
restrictions on a wide range of U.S. and other foreign ICT products and services with an apparent long-term
goal of replacing foreign ICT products and services. Concerns centered on requirements that ICT
equipment and other ICT products and services in critical sectors be “secure and controllable.”

Some of these policies would apply to wide segments of the Chinese market. For example, in July 2015,
China passed a National Security Law whose stated purpose is to safeguard China’s security, but it also
includes sweeping provisions addressing economic and industrial policy. Additionally, in September 2015,
the State Council published a big data development plan, which for the first time set a timetable for adopting
“secure and controllable” products and services in critical departments by 2020. China also enacted a
Counterterrorism Law in December 2015 and then a Cybersecurity Law in November 2016, which imposed
far-reaching and onerous trade restrictions on imported ICT products and services in China.

Other policies would apply to specific sectors of China’s economy. A high profile example from December
2014 is a draft measure issued by the China Banking Regulatory Commission (CBRC) that called for 75
percent of ICT products used in the banking system to be “secure and controllable” by 2019 and that
imposed a series of criteria that would shut out foreign ICT providers from China’s banking sector. While
CBRC subsequently suspended work on this draft measure following strong complaints from the United
States, other specific sectors currently pursuing “secure and controllable” policies include the insurance
sector and the electronic commerce sector, among other sectors.

In 2015, the United States, in concert with other governments and stakeholders around the world, raised
serious concerns at the highest levels of government within China. President Obama and President Xi
discussed this issue during the state visit of President Xi in September and agreed on a set of principles for
trade in information technologies. The issue was also raised in connection with the June 2015 S&ED
meeting and the November 2015 JCCT meeting, with China making a series of additional important
commitments with regard to technology policy.

China reiterated many of these commitments at the November 2016 JCCT meeting, where it affirmed that
its “secure and controllable” policies are not to unnecessarily limit or prevent commercial sales
opportunities for foreign ICT suppliers or unnecessarily impose nationality based conditions and
restrictions on commercial ICT purchases, sales or uses. China also agreed that it would notify relevant
technical regulations to the WTO Committee on Technical Barriers to Trade (TBT Committee).

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Indigenous Innovation

In 2016, policies aimed at promoting “indigenous innovation” continued to represent an important


component of China’s industrialization efforts. Through intensive, high-level bilateral engagement, the
United States previously secured a series of critical commitments from China that generated major progress
in de-linking indigenous innovation policies at all levels of the Chinese government from government
procurement preferences, culminating in the issuance of a State Council measure mandating that provincial
and local governments eliminate any remaining linkages by December 2011. At the November 2016 JCCT
meeting, in response to U.S. concerns regarding the continued issuance of inconsistent measures, China
announced that its State Council had issued a document requiring all local regions and all agencies to
“further clean up related measures linking indigenous innovation policy to the provision of government
procurement preference.”

Addressing related concerns, the United States, using the U.S.-China Innovation Dialogue, persuaded China
to take an important step at the May 2012 S&ED meeting, where China committed to treat IPR owned or
developed in other countries the same as IPR owned or developed in China. The United States also used
the 2012 JCCT process to press China to revise or eliminate specific measures that appeared to be
inconsistent with this commitment. Throughout 2013 and 2014, China reviewed specific U.S. concerns,
and the United States and China intensified their discussions. At the December 2014 JCCT meeting, China
clarified and underscored that it will treat IPR owned or developed in other countries the same as
domestically owned or developed IPR, and it further agreed that enterprises are free to base technology
transfer decisions on business and market considerations, and are free to independently negotiate and decide
whether and under what circumstances to assign or license intellectual property rights to affiliated or
unaffiliated enterprises.

In 2016, China’s measures on “secure and controllable” ICT policy included provisions that would create
discriminatory indigenous innovation preferences. In addition, China’s recent steps to reform its drug
review and approval system raised new concerns related to indigenous innovation and technology transfer.
For example, in 2015, China’s State Council issued a measure that calls for expedited review and approval
to be granted to “innovative new drugs with manufacturing capacity shifted to China.” At the November
2016 JCCT meeting, China issued a helpful clarification on the intent of its “secure and controllable”
policies, a subject on which the United States will continue to engage with China closely in 2017.

Technology Transfer and Technology Localization

While some longstanding concerns regarding technology transfer remain unaddressed, and new ones have
emerged, such as tying government preferences to the localization of technology in China and granting
regulatory review and approval preferences to innovative drug manufacturers that shift their production to
China, some progress has been made in select areas. For example, China committed at the December 2013
JCCT meeting not to finalize or implement a selection catalogue and rules governing official use vehicles.
The catalogue and rules would have interfered with independent decision making on technology transfer
and would have effectively excluded vehicles produced by foreign and foreign-invested enterprises from
important government procurement opportunities. At the same time, new technology-transfer proposals
continue to proliferate. For example, in late 2016, ostensibly to further cybersecurity goals, China proposed
a draft standard on the “security controllable evaluation index for central processing units”
(semiconductors) that ranked products on the degree to which product design was duplicable in China—
essentially requiring technology transfer in order to rank high on this index. How authorities intend to

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utilize this index is unclear, but it would appear to create a basis for discriminating against foreign
semiconductors based on the degree to which technology is transferred to China.

Export Restraints

China continues to deploy a combination of export restraints, including export quotas, export licensing,
minimum export prices, export duties and other restrictions, on a number of raw material inputs where it
holds the leverage of being among the world’s leading producers. Through these export restraints, it appears
that China is able to provide substantial economic advantages to a wide range of downstream producers in
China at the expense of foreign downstream producers, while creating pressure on foreign downstream
producers to move their operations, technologies and jobs to China. In 2013, China removed its export
quotas and duties on several raw material inputs of key interest to the U.S. steel, aluminum and chemicals
industries after the United States won a dispute settlement case against China at the WTO. In 2014, the
United States won a second WTO case, where the claims focused on China’s export restraints on rare earths,
tungsten and molybdenum, which are key inputs for a multitude of U.S.-made products, including hybrid
automobile batteries, wind turbines, energy-efficient lighting, steel, advanced electronics, automobiles,
petroleum, and chemicals. China removed those export restraints in May 2015. In July 2016, the United
States launched a third WTO case challenging export restraints maintained by China. The challenged
export restraints include export quotas and export duties maintained by China on various forms of 11 raw
materials, including antimony, chromium, cobalt, copper, graphite, indium, lead, magnesia, talc, tantalum
and tin. These raw materials are key inputs in important U.S. manufacturing industries, including
aerospace, automotive, construction and electronics.

Subsidies

China has continued to provide substantial subsidies to its domestic industries, causing injury to U.S.
industries. Some of these subsidies also appear to be prohibited under WTO rules. The United States has
addressed these subsidies through countervailing duty proceedings conducted by the Commerce
Department, invocation of a trade policy compliance mechanism established by China’s State Council, and
dispute settlement cases at the WTO. The United States and other WTO members also have continued to
press China to notify all of its subsidies to the WTO in accordance with its WTO obligations. Since joining
the WTO 15 years ago, China has not yet submitted to the WTO a complete notification of subsidies
maintained by the central government, and it did not notify a single sub-central government subsidy until
July 2016, when it provided information only on sub-central government subsidies that the United States
had challenged as prohibited subsidies in a WTO case.

Excess Capacity

Chinese government actions and financial support in manufacturing industries like steel and aluminum have
contributed to massive excess capacity in China, with the resulting over-production distorting global
markets and hurting U.S. producers and workers in both the United States and third country markets such
as Canada and Mexico, where U.S. exports compete with Chinese exports. While China recognizes the
severe excess capacity problem in these industries, among others, and has taken steps to try to address this
problem, there have been mixed results.

From 2000 to 2014, China accounted for more than 75 percent of global steelmaking capacity growth.
While China’s capacity growth appears to have slowed since 2014, according to Organization for Economic
Cooperation and Development (OECD) figures, China’s efforts to address excess capacity to date have not
resulted in reduced total steelmaking capacity in China. Currently, China’s capacity alone exceeds the

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combined steelmaking capacity of the European Union (EU), Japan, the United States, and Russia. China
has no comparative advantage with regard to the energy and raw material inputs that make up the majority
of costs for steelmaking, yet China’s capacity has continued to grow and is estimated to have exceeded 1.16
billion metric tons (MT) in 2016, despite weakening demand domestically and abroad. Steel demand in
China decreased 5 percent in 2015 as compared to 2014, and demand in China has been projected to
decrease by another 1 percent in 2016 and then by 2 percent in 2017, according to the World Steel
Association. As a result, China’s steel exports grew to be the largest in the world, at 93 million MT in
2014, a 50-percent increase over 2013 levels, despite sluggish steel demand abroad. In 2015, Chinese
exports reached a historic high of 110 million MT, and China’s steel exports are expected to grow even
further in 2016, causing increased concerns about the detrimental effects that these exports may have on
the already saturated world market for steel.

Similarly, monthly production of primary aluminum in China doubled between January 2011 and July 2015
and continues to grow, despite a severe drop in global aluminum prices during the same period. Large new
facilities are being built with government support, including through energy subsidies, as China’s primary
aluminum production accounted for 54 percent of global production from January through October 2016.
As a consequence, China’s aluminum excess capacity is contributing to a severe decline in global aluminum
prices, harming U.S. plants and workers.

Not unlike the situations in the steel and aluminum industries, China’s production of soda ash has increased
as domestic demand has stagnated. As a result, China’s soda ash exports increased 23 percent in 2015 as
compared to the previous year, and this trend has continued in 2016. Further, China’s soda ash production,
which totaled 26 million MT in 2015, is projected to grow at nearly 3 percent annually through 2020, which
is more than double China’s projected 1.2 percent annual increase in domestic demand over that same time
period. It also is estimated that China’s excess soda ash capacity will continue to grow in the coming years,
reaching over 10.5 million MT by 2019.

Excess capacity in China – whether in the steel industry or other industries like aluminum or soda ash –
hurts U.S. industries and workers not only because of direct exports from China to the United States, but
because lower global prices and a glut of supply make it difficult for even the most competitive producers
to remain viable. Domestic industries in many of China’s trading partners have continued to respond to the
effects of the trade-distortive effects of China’s excess capacity by petitioning their governments to impose
trade remedies such as antidumping and countervailing duties.

Value-added Tax Rebates and Related Policies

As in prior years, in 2016, the Chinese government attempted to manage the export of many primary,
intermediate and downstream products by raising or lowering the VAT rebate available upon export. China
sometimes reinforces its objectives by imposing or retracting export duties. These practices have caused
tremendous distortion and uncertainty in the global markets for some products, particularly downstream
products where China is a leading world producer or exporter, such as products made by the steel, aluminum
and soda ash industries. These practices, together with other policies, such as excessive government
subsidization, also have contributed to severe excess capacity in these same industries. A positive
development took place at the July 2014 S&ED meeting, when China agreed to improve its VAT rebate
system, including by actively studying international best practices, and to deepen communication with the
United States on this matter, including regarding its impact on trade. To date, however, China has not made
any movement toward the adoption of international best practices.

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Strategic Emerging Industries

In 2010, China’s State Council issued a decision on accelerating the cultivation and development of
“strategic emerging industries” (SEIs) that called upon China to develop and implement policies designed
to promote rapid growth in government-selected industry sectors viewed as economically and strategically
important for transforming China’s industrial base into one that is more internationally competitive in
cutting-edge technologies. China subsequently identified seven sectors for focus under the SEI initiative,
including energy-saving and environmental protection, new generation information technology,
biotechnology, high-end equipment manufacturing, new energy, new materials and new-energy vehicles.
The list of sectors was expanded with the issuance of China’s 13th Five-year Plan in March 2016.

To date, import substitution policies have been included in some SEI development plans at the sub-central
government level. For example, a development plan for the light-emitting diode (LED) industry issued by
the Shenzhen municipal government included a call to support research and development in products and
technologies that have the ability to substitute for imports. Shenzhen rescinded the plan in 2013 following
U.S. Government intervention with China’s central government authorities.

Similarly, some central and sub-central government measures use local content requirements as a condition
for enterprises in SEI sectors to receive financial support or other preferences. For example, in the high-
end equipment manufacturing sector, China has maintained an annual program that conditioned the receipt
of a subsidy on an enterprise’s use of at least 60 percent Chinese-made components when manufacturing
intelligent manufacturing equipment. Citing WTO concerns, the United States began pressing China in
2014 to repeal or modify these measures. In 2015, China reported that it had decided not to renew this
subsidy program.

In addition, an array of Chinese policies designed to assist Chinese automobile enterprises in developing
electric vehicle technologies and in building domestic brands that can succeed in global markets continued
to pose challenges in 2016. As previously reported, these policies have generated serious concerns about
discrimination based on the country of origin of IP, forced technology transfer, research and development
requirements, investment restrictions and discriminatory treatment of foreign brands and imported vehicles.
Although significant progress has been made in addressing some of the challenges posed by these policies,
more work remains to be done.

In May 2015, China’s State Council released “Made in China 2025,” a long-term plan spearheaded by the
Ministry of Industry and Information Technology (MIIT) intended to raise industrial productivity through
more advanced and flexible manufacturing techniques. Specifically, through Made in China 2025, the
Chinese government hopes to make advanced manufacturing technologies and sectors a key driver of
economic growth. The implicated technologies and sectors include advanced information technology,
automated machine tools and robotics, aviation and spaceflight equipment, maritime engineering
equipment and high-tech vessels, advanced rail transit equipment, new energy vehicles, power equipment,
farm machinery, new materials, biopharmaceuticals and advanced medical products. According to industry
experts, Made in China 2025 represents a modest improvement over SEI development plans and indigenous
innovation initiatives rolled out over the past decade. However, Made in China 2025 includes many
holdovers from these prior state-driven plans and initiatives, as it, for example, sets targets for indigenous
production or control of up to 40 percent of certain critical components in the aerospace, power and
construction sectors, among other sectors, by 2020, while aiming to achieve substantial productivity gains
in these sectors. Industry experts are skeptical that China will be able to reach its Made in China 2025 goals
due to other policies that hold back competition, limit market access and over-regulate new technologies
and cross-border data flows.

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Import Ban on Remanufactured Products

China prohibits the importation of remanufactured products, which it typically classifies as used goods.
China also maintains restrictions that prevent remanufacturing process inputs (known as cores) from being
imported into China’s customs territory, except special economic zones. These import prohibitions and
restrictions undermine the development of industries in many sectors in China, including mining,
agriculture, healthcare, transportation and communications, among others, because companies in these
industries are unable to purchase high-quality, lower-cost remanufactured products produced outside of
China.

Standards

In the standards area, two principal types of problems harm U.S. companies. First, Chinese government
officials in some instances have reportedly pressured foreign companies seeking to participate in the
standards-setting process to license their technology or intellectual property on unfavorable terms. Second,
China has continued to pursue unique national standards in a number of high technology areas where
international standards already exist, such as 3G and 4G telecommunication standards, Wi-Fi standards and
information security standards. The United States continues to press China to address these specific
concerns, but to date this bilateral engagement has yielded minimal progress.

Currently, China is undergoing a large-scale reform of its standards system. As part of this reform, China
is seeking to incorporate a “bottom up” strategy in standards development in addition to the existing “top
down” system. At the same time, the existing technical committees continue to develop standards. For
example, the technical committee for cybersecurity standards has begun allowing foreign companies to
participate in standards development and setting, with several U.S. and other foreign companies being
allowed to vote and to participate at the working group level in standards development.

Government Procurement

China has committed itself to join the WTO’s Government Procurement Agreement. To date, however, the
United States, the EU, and other GPA parties have viewed China’s offers of coverage as highly
disappointing in scope and coverage. China submitted its fifth revised offer in December 2014. This offer
showed progress in a number of areas, including thresholds, entity coverage and services coverage.
Nonetheless, remains far from acceptable as significant deficiencies remain in a number of critical areas,
including thresholds, entity coverage, services coverage and exclusions.

China’s current government procurement regime is governed by two important laws. The Government
Procurement Law, which is administered by the Ministry of Finance, governs purchasing activities
conducted with fiscal funds by state organs and other organizations at all levels of government in China.
The Tendering and Bidding Law falls under the jurisdiction of the National Development and Reform
Commission and imposes uniform tendering and bidding procedures for certain classes of procurement
projects in China, notably construction and works projects, without regard for the type of entity that
conducts the procurement. Both laws cover important procurements that GPA parties would consider to be
government procurement eligible for coverage under the GPA. The United States will continue to work
with the Chinese government to ensure that China’s future GPA offers include coverage of government
procurement regardless of which law it falls under, including procurement conducted by both government
entities and other entities, such as state-owned enterprises.

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Investment Restrictions

China seeks to protect many domestic industries through a restrictive investment regime, which adversely
affects foreign investors in services sectors, agriculture, extractive industries and manufacturing sectors. In
a recent survey, the OECD ranked investment restrictiveness in China at over five times the average of the
58 G20 and OECD members surveyed. In line with its own plans for domestic reform, including as
expressed through the November 2013 Third Plenum Decision, China continues to consider improvements
to its foreign investment regime, including through the use of a “negative list” as a mechanism to govern
access for foreign investors (meaning that all investments are permitted except for those explicitly
excluded). However, many aspects of China’s current investment regime, including lack of substantial
liberalization, maintenance of a case-by-case administrative approval system and the potential for a new
and overly broad national security review, continue to cause foreign investors great concern. In addition,
foreign enterprises report that Chinese government officials may condition investment approval on a
requirement that a foreign enterprise transfer technology, conduct research and development in China,
satisfy performance requirements relating to exportation or the use of local content or make valuable, deal-
specific commercial concessions.

In part to address these investment restrictions, the United States has engaged in negotiations with China
to conclude a high-standard bilateral investment treaty (BIT). In negotiations with the United States, China
committed for the first time to negotiate a BIT that would provide national treatment at all phases of
investment, including market access (i.e., the “pre-establishment” phase of investment), and would employ
a negative list approach in identifying exceptions.

The United States has repeatedly raised concerns with China about its restrictive investment regime. To
date, this sustained bilateral engagement has not led to a significant relaxation of China’s investment
restrictions, nor has it appeared to curtail ad hoc actions by Chinese government officials.

Trade Remedies

China’s regulatory authorities in some instances seem to be pursuing antidumping and countervailing duty
investigations and imposing duties for the purpose of striking back at trading partners that have exercised
their WTO rights against China, even when necessary legal and factual support for the duties is absent. The
U.S. response has been the filing and prosecution of three WTO disputes. The decisions reached by the
WTO in those three disputes confirm that China failed to abide by WTO disciplines when imposing the
duties at issue.

SERVICES BARRIERS

Overview

As in past years, Chinese regulators continued to use discriminatory regulatory processes, informal bans on
entry and expansion, overly burdensome licensing and operating requirements, and other means to frustrate
the efforts of U.S. suppliers of services, including banking services, insurance services, telecommunication
services, Internet-related services (including cloud services), audiovisual services, express delivery
services, legal services and other services to achieve their full market potential in China. Some sectors,
including electronic payment services and theatrical film distribution, have been the subject of WTO dispute
settlement. While China declared an intent to further liberalize a number of services sectors in its Third
Plenum Decision, no meaningful concrete steps have been taken.

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Electronic Payment Services

China continued to place unwarranted restrictions on foreign companies, including the major U.S. credit
card and processing companies, which supply electronic payment services to banks and other businesses
that issue or accept credit and debit cards. The United States prevailed in a WTO case challenging those
restrictions, and China agreed to comply with the WTO’s rulings by July 2013, but China has not yet taken
needed steps to authorize access by foreign suppliers to this market. The United States is actively pressing
China to comply with the WTO’s rulings and is also considering appropriate next steps at the WTO.

Theatrical Films

In February 2012, the United States and China reached an alternative solution with regard to certain rulings
relating to the importation and distribution of theatrical films in a WTO case that the United States had
won. The two sides signed a memorandum of understanding (MOU) providing for substantial increases in
the number of foreign films imported and distributed in China each year, along with substantial additional
revenue for foreign film producers. Significantly more U.S. films have been imported and distributed in
China since the signing of the MOU, and the revenue received by U.S. film producers has increased
significantly. However, China has not yet fully implemented its MOU commitments, including with regard
to critical commitments to open up film distribution opportunities for imported films. As a result, the United
States has been pressing China for full implementation of the MOU, particularly with regard to films that
are distributed in China on a flat-fee basis rather than a revenue-sharing basis. At the June 2015 S&ED
meeting, China committed to ensure that any Chinese enterprise licensed to distribute films in China can
distribute imported flat-fee films on their own and without having to contract with or otherwise partner with
China Film Group or any other state-owned enterprise. China further committed that the State
Administration of Press, Publication, Radio, Film and Television (SAPPRFT), China Film Group or any
other state-owned enterprise would not directly or indirectly influence the negotiation, terms, amount of
compensation or execution of any distribution contract between a licensed Chinese distributor and a U.S.
flat-fee film producer. In 2017, under the terms of the MOU, the two sides are scheduled to hold discussions
regarding the provision of further meaningful compensation to the United States.

Banking Services

China has exercised significant caution in opening up the banking sector to foreign competition. In
particular, China has imposed working capital requirements and other requirements that have made it more
difficult for foreign banks to establish and expand their market presence in China. Many of these
requirements, moreover, have not applied equally to foreign and domestic banks. For example, China has
limited the sale of equity stakes in existing state-owned banks to a single foreign investor to 20 percent,
while the total equity share of all foreign investors is limited to 25 percent. Another problematic area
involves the ability of U.S. and other foreign banks to participate in the domestic currency business in
China. This is a market segment that foreign banks are most eager to pursue in China, particularly with
regard to Chinese individuals. Under existing governing regulations, only foreign-funded banks that have
had a representative office in China for two years and that have total assets exceeding $10 billion can apply
to incorporate in China. After incorporating, banks only become eligible to offer full domestic currency
services to Chinese individuals if they can demonstrate that they have operated in China for one year. The
regulations also restrict the scope of activities that can be conducted by foreign banks seeking to operate in
China through branches instead of through subsidiaries. In addition, Chinese authorities’ opaque licensing
processes have limited the ability of foreign bank entry or expansion in particular business lines. Partly as
a result of these restrictions, foreign banks continue to hold only a small portion (less than 2 percent) of
total banking assets in China.

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Insurance Services

China’s regulation of the insurance sector has resulted in market access barriers for foreign insurers, whose
share of China’s market remains very low: approximately 5 percent in the life sector and approximately 2
percent in the non-life (property and casualty) sector. In the life insurance sector, China only permits
foreign companies to participate in Chinese-foreign joint ventures, with foreign equity capped at 50 percent.
For the health and pension insurance sectors, China also caps foreign equity at 50 percent. China’s market
for political risk insurance is closed to foreign participation, and China restricts the scope of foreign
participation in insurance brokerage services. Meanwhile, some U.S. insurance companies established in
China sometimes encounter difficulties in getting the Chinese regulatory authorities to issue timely
approvals of their requests to open up new internal branches to expand their operations.

Securities, Asset Management and Other Financial Services

China caps foreign ownership in securities joint ventures and asset management companies at 49 percent
foreign equity. Foreign investors also are only permitted to own up to 49 percent of mutual fund companies,
futures brokerages and credit rating agencies. Bilateral engagements with China have helped achieve some
progress in securities and fund management sectors over the years, including China increasing the permitted
foreign ownership stake in joint ventures in securities firms from 33 to 49 percent after 2012. In addition,
at the June 2016 S&ED meeting, China committed to gradually raise the percentage of equity that qualified
foreign financial institutions can hold in securities and fund management companies. Recently, China also
has allowed wholly owned asset managers to engage in private securities fund management business.

Telecommunications Services

Restrictions maintained by China on both basic and value-added telecommunication services have created
serious barriers to market entry for foreign suppliers. Restrictions on basic telecommunication services
have blocked foreign suppliers from accessing a sector in China that has witnessed explosive growth. China
has informally banned on new entry – only a handful of Chinese and no foreign-invested suppliers have
been licensed as basic suppliers since China’s entry into the WTO, almost two decades ago. There is also
a requirement that foreign suppliers enter the China market only through joint ventures with state-owned
enterprises, and capital requirements exceeding $100 million, although entry requirements for value-added
services are less onerous, only a handful of foreign firms have been granted licenses, and stakeholders
report non-transparent requirements and procedures. For example, in a recently revised telecommunication
services catalogue, the licensing authority restricts foreign entry to the narrow list of services China set
forth in its WTO GATS commitments, instead of embracing a broad and flexible definition of value-added
services that would allow for innovation. In addition, China has not formally articulated how its WTO
GATS commitments correspond to its domestic catalogue. In May 2013, in a positive but very modest
move toward liberalization, China introduced rules establishing a pilot program for the resale of mobile
services, which can increase competitive opportunities in China’s heavily concentrated market. However,
China continues to exclude foreign firms from the pilot program, and there are indications that China may
be backing off from this initiative altogether, despite promises to create a resale license category available
to all firms, irrespective of nationality. The United States continues to press for progress in
institutionalizing resale access on the same basis as provided to domestic companies.

Audio-visual Services

Despite boasting the world’s fastest-growing movie theater market, China’s 49 percent foreign equity limit
for entities supplying theater services and onerous requirements for screening domestic films have

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discouraged U.S. investment. In addition, China’s restrictions on services associated with television, radio
and film production and distribution prohibit or greatly limit participation by foreign suppliers.

Express Delivery Services

The United States continues to raise concerns with China regarding implementation of the 2009 Postal Law
and related regulations. China has blocked foreign companies’ access to the document segment of China’s
domestic express delivery market, and it does not have a strong track record of providing non-
discriminatory treatment in awarding foreign companies business permits for access to the package segment
of China’s domestic express delivery market, where it also applies overly burdensome regulatory
approaches.

Legal Services

China has issued measures intended to implement the legal services commitments that it made upon joining
the WTO. However, these measures restrict the types of legal services that can be provided by foreign law
firms, including through a prohibition on foreign law firms hiring lawyers qualified to practice Chinese
law, and impose lengthy delays for the establishment of new offices.

BARRIERS TO DIGITAL TRADE

Overview

China’s Internet regulatory regime is restrictive and non-transparent, affecting a broad range of commercial
services activities conducted via the Internet. In addition, China’s treatment of foreign companies seeking
to participate in the development of cloud computing services, including computer data and storage services
provided over the Internet, raises concerns.

Cloud Computing Restrictions

In major markets, including China, cloud computing services are typically offered through commercial
presence in one of two ways: as an integrated service in which the owner and operator of a
telecommunication network also offers computing services, including data storage and processing function,
over that network; or as a stand-alone computer service, with the customer responsible for arranging
connectivity to the computing service site. Although China’s GATS commitments cover both options,
neither is currently open to foreign-invested companies.

China is seeking to similarly restrict the ability of foreign enterprises to offer cloud computing services into
China on a cross-border basis. Late in 2016, China’s regulator issued a draft notice on regulating cloud
computing, elements of which also appeared in a recently issued measure entitled “On Cleaning up and
Regulating Internet Access Services Market” that prohibits Chinese telecommunication operators from
offering consumers leased lines or virtual private network connections reach to overseas data centers. The
United States has raised this issue with China and continues to evaluate it in the context of China’s WTO
GATS obligation to ensure access to and use of leased lines for cross-border data processing services. The
United States will work to ensure that legitimate cross-border services can continue to be offered into China.

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Web Filtering and Blocking

China continues to engage in extensive blocking of legitimate websites, imposing significant costs on both
suppliers and users of web-based services and products. According to the latest data, China currently blocks
11 of the top 25 global sites, and U.S. industry research has calculated that up to 3,000 sites in total are
blocked, affecting billions of dollars in business, including communications, networking, news and other
sites. While becoming more sophisticated over time, the technical means of blocking, dubbed the Great
Firewall, still often appears to affect sites that may not be the intended target, but that may share the same
Internet Protocol address. In addition, there have been reports that simply having to pass all Internet traffic
through a national firewall adds delays to transmission that can significantly degrade the quality of the
service, in some cases to a commercially unacceptable level, thereby inhibiting or precluding the cross-
border supply of certain services.

Voice-over-Internet Protocol (VOIP) Services

While computer-to-computer VOIP services are permitted in China, China’s regulatory authorities have
restricted to basic telecommunications service licensees the ability to offer VOIP services interconnected
to the public switched telecommunications network (i.e., to call a traditional phone number). There is no
obvious rationale for such a restriction, which deprives consumers of a useful communication option, and
thus the United States continues to advocate for eliminating it.

Domain Name Rules

U.S. and other foreign stakeholders continue to express concern over rules proposed in 2016 to regulate
Internet Domain Names, a critical input into many web-based services offered in China. While China
clarified that initial fears that the rules sought to block access to any website not registered in China were
based on a misreading of the intent of the proposed rules, concerns remain with respect to how China intends
to implement requirements on registering and using domain names and other Internet resources. The United
States will continue to closely monitor this rulemaking.

Cybersecurity Law and Sector-specific Laws Implementing Data and Facilities Localization

A number of elements of China’s new Cybersecurity Law, issued in November 2016, authorize Chinese
agencies to further restrict market access for cloud computing and other Internet-enabled related services,
based on data and facilities localization policies applicable to services deemed critical. China is likely to
issue additional sector-specific measures to implement this law, including by identifying services deemed
critical. These developments have generated serious concerns in the United States and among U.S. and
other foreign companies. The United States will continue to closely monitor developments in this area.

Restrictions on Online Video and Entertainment Software

China restricts the online supply of foreign video and entertainment software through measures affecting
both content and distribution platforms. With respect to content, the most burdensome restrictions are
implemented through exhaustive content review requirements, based on vague and otherwise non-
transparent criteria. In addition, with respect to online video, SAPPRFT has required Chinese online
platform suppliers to spend no more than 30 percent of their acquisition budget on foreign content. With
respect to distribution platforms, SAPPRFT has instituted numerous measures, such as requirements that
video platforms all be state-owned, that prevent foreign suppliers from qualifying for a license. SAPPRFT
and other Chinese regulatory authorities have also taken actions to prevent the cross-border supply of online

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video services. The United States is carefully evaluating whether measures governing the distribution of
both online videos and entertainment software comport with China’s WTO GATS commitments, which
include both the investment in and cross-border supply of video and entertainment software services. The
United States will continue to seek to engage with China to address these restrictions.

Encryption

Use of ICT products and services is increasingly dependent on robust encryption, an essential functionality
for protecting privacy and safeguarding of sensitive commercial information. Such functionality is
particularly important in China, given the high incidence of cybertheft in this market. Onerous requirements
on the use of encryption, including intrusive approval processes and, in many cases, mandatory use of
indigenous encryption algorithms (e.g., for WiFi and 4G cellular products), continue to be cited by
stakeholders as a significant trade barrier. The United States will continue to monitor implementation of
existing rules, and will remain vigilant toward the introduction of any new requirements hindering
technologically neutral use of robust, internationally standardized encryption.

Restrictions on Internet-enabled Payment Services

The People’s Bank of China (PBOC) first issued regulations for non-bank suppliers of online payment
services in 2010, and it subsequently began processing applications for licensees in a sector that previously
had been unregulated. Regulations were further strengthened in 2015, with additional provisions aimed at
increasing security and traceability of transactions. According to a recent U.S. industry report, of over 200
such licenses issued as of June 2014, only two were issued to foreign-invested suppliers, and those two
were for limited services. This report provides clear evidence supporting stakeholder concerns about the
difficulties they have faced entering the market and the slow process foreign firms face in getting licensed.
In addition, as with other ICT sectors, PBOC has required suppliers to localize data and facilities in China.
The United States will continue to seek to engage with China to address these restrictions.

AGRICULTURE

Overview

China is the largest agricultural export market for the United States, with more than $21 billion in U.S.
agricultural exports in 2016, up from $20 billion in 2015. Much of this success resulted from intensive
engagement by the United States with China’s regulatory authorities. Notwithstanding this success, China
remains among the least transparent and predictable of the world’s major markets for agricultural products,
largely because of uneven enforcement of regulations and selective intervention in the market by China’s
regulatory authorities. Seemingly capricious practices by Chinese customs and quarantine agencies delay
or halt shipments of agricultural products into China. Sanitary and phytosanitary (SPS) measures with
questionable scientific bases or a generally opaque regulatory regime frequently have created difficulties
and uncertainty for traders in agricultural commodities, who require as much certainty and transparency as
possible. With China moving forward with implementation of its 2015 Food Safety Law, new regulations
– and new concerns such as burdensome and unnecessary requirements for official certification of low-risk
food exports – are on the increase. In addition, market access promised through the TRQ system set up
pursuant to China’s WTO accession agreement still has yet to be fully realized. At the same time, China
has been steadily increasing domestic support for key commodities, and reports commissioned by certain
U.S. farm groups have concluded that China may be exceeding its WTO limits.

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Beef, Poultry and Pork

In 2016, beef, poultry and pork products were affected by questionable SPS measures implemented by
China’s regulatory authorities. For example, China continued to block the importation of U.S. beef and
beef products, more than nine years after these products had been declared safe to trade under international
scientific guidelines established by the World Organization for Animal Health (known by its historical
acronym OIE), and despite the further fact that in 2013 the United States received the lowest risk status
from the OIE, i.e., negligible risk. China also continued to impose an unwarranted and unscientific Avian
Influenza-related import suspension on U.S. poultry due to an outbreak of high-pathogenic Avian Influenza
(AI), which has now been eliminated in the United States. Specifically, China has been unwilling to follow
OIE guidelines and accept poultry from regions in the United States unaffected by this disease.
Additionally, China continued to maintain overly restrictive pathogen and residue requirements for raw
meat and poultry. Consequently, anticipated growth in U.S. exports of these products was again not
realized.

Biotechnology Approvals

Overall delays in China’s approval process for agricultural products derived from biotechnology worsened
in 2016, creating increased uncertainty among traders and resulting in adverse trade impact, particularly for
U.S. exports of corn. In addition, the asynchrony between China’s product approvals and the product
approvals made by other countries widened.

In February 2016, China issued safety certificates for three of the 11 products of agricultural biotechnology
under review. However, China continued to delay approvals for eight other products, with applications
dating as far back as 2011, even though more than a dozen other countries have deemed them to be safe.
At the JCCT meeting in November 2016, China indicated that it would have the opportunity to review the
status of its safety evaluation for these products in December 2016, but it gave no indication as to whether
it would issue safety certificates for them.

At the June 2016 S&ED meeting, the United States agreed to provide China’s regulators with a study
addressing the impact of asynchronous approvals on sustainability, innovation and trade. The United States
subsequently commissioned a study, which has been provided to China’s regulators.

Domestic Support

For several years, China has been significantly increasing domestic subsidies and other support measures
for its agricultural sector. China has established a direct payment program, instituted minimum support
prices for basic commodities and sharply increased input subsidies. China has implemented a cotton reserve
system, based on minimum purchase prices, and cotton target price programs. It also has begun several
new support schemes for hogs and pork, along with a purchasing reserve system for pork. China submitted
its most recent notification concerning domestic support measures to the WTO in May 2015, but it only
provided information up to 2010. The United States has remained concerned that the methodologies used
by China to calculate support levels, particularly with regard to its price support policies and direct
payments, result in underestimates. Certain U.S. farm groups have commissioned reports to calculate
support levels for certain commodities, including corn, wheat and soybeans, and these reports have
concluded that China may be substantially exceeding its WTO-agreed domestic support spending limits.
In September 2016, the United States launched a WTO case challenging China’s government support for
the production of rice, wheat and corn as being in excess of China’s commitments.

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Tariff-rate Quota Administration

In December 2016, the United States launched a WTO case challenging China’s administration of tariff-
rate quotas for rice, wheat and corn.

TRANSPARENCY

Overview

One of the core principles reflected throughout China’s WTO accession agreement is transparency. China’s
WTO transparency commitments in many ways required a profound historical shift in Chinese policies.
Although China has made strides to improve transparency following its accession to the WTO, there
remains a lot more for China to do in this area.

Publication of Trade-related Laws, Regulations and Other Measures

In its WTO accession agreement, China committed to adopt a single official journal for the publication of
all trade-related laws, regulations and other measures, and China adopted a single official journal, to be
administered by MOFCOM, in 2006. To date, it appears that some but not all central-government entities
publish trade-related measures in this journal, and these government entities tend to take a narrow view of
the types of trade-related measures that need to be published in the official journal. As a result, while trade-
related administrative regulations and departmental rules are more commonly (but still not regularly)
published in the journal, it is less common for other measures such as opinions, circulars, orders, directives
and notices to be published, even though they are in fact all binding legal measures. In addition, China
does not normally publish in the journal certain types of trade-related measures, such as subsidy measures,
nor does it normally publish sub-central government trade-related measures in the journal.

Notice-and-comment Procedures

In its WTO accession agreement, China committed to provide a reasonable period for public comment
before implementing new trade-related laws, regulations and other measures. China has taken several steps
related to this commitment. In 2008, the National People’s Congress (NPC) instituted notice-and-comment
procedures for draft laws, and shortly thereafter China indicated that it would also publish proposed trade
and economic related administrative regulations and departmental rules for public comment. Subsequently,
the NPC began regularly publishing draft laws for public comment, and China’s State Council often (but
not regularly) published draft administrative regulations for public comment. In addition, many of China’s
ministries were not consistent in publishing draft departmental rules for public comment. At the May 2011
S&ED meeting, China committed to issue a measure implementing the requirement to publish all proposed
trade and economic related administrative regulations and departmental rules on the website of the State
Council’s Legislative Affairs Office (SCLAO) for a public comment period of not less than 30 days. In
April 2012, the SCLAO issued two measures that appear to address this requirement. Since then, despite
continuing U.S. engagement, little noticeable improvement in the publication of departmental rules for
public comment appears to have taken place, even though China confirmed that those two SCLAO
measures are binding on central government ministries.

Translations

In its WTO accession agreement, China committed to make available translations of all of its trade-related
laws, regulations and other measures at all levels of government in one or more of the WTO languages, i.e.,

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English, French and Spanish. Prior to 2014, China had only compiled translations of trade-related laws and
administrative regulations (into English), but not other types of measures, and China was years behind in
publishing these translations. At the July 2014 S&ED meeting, China committed that it would extend its
translation efforts to include not only trade-related laws and administrative regulations but also trade-related
departmental rules. Subsequently, in March 2015, China issued a measure requiring trade-related
departmental rules to be translated into English. This measure also provides that the translation of a
departmental rule normally must be published before implementation. The United States is pressing China
to ensure that it similarly publishes translations of trade-related laws and administrative regulations before
implementation, as required by China’s WTO accession agreement.

LEGAL FRAMEWORK

Overview

In addition to the area of transparency, several other areas of China’s legal framework can adversely affect
the ability of the United States and U.S. exporters and investors to access or invest in China’s market. Key
areas include administrative licensing, competition policy, the treatment of non-governmental organizations
(NGOs), commercial dispute resolution, labor laws and laws governing land use. Corruption among
Chinese government officials, enabled in part by China’s incomplete adoption of the rule of law, is also a
key concern.

Administrative Licensing

Despite numerous changes made by the Chinese government since the issuance of the Third Plenum
Decision in November 2013, U.S. companies continue to encounter significant problems with a variety of
administrative licensing processes in China, including processes to secure product approvals, investment
approvals, business expansion approvals, business license renewals and even approvals for routine business
activities. While U.S. companies are encouraged by the overall reduction in license approval requirements
and the focus on decentralizing licensing approval processes, U.S. companies report that these efforts have
only had a marginal impact on their licensing experiences so far.

Competition Policy

Chinese regulatory authorities’ implementation of China’s Anti-monopoly Law poses multiple challenges.
One key concern relates to how the Anti-monopoly Law will be applied to state-owned enterprises, given
that a provision in the Anti-monopoly Law protects the lawful operations of state-owned enterprises and
government monopolies in industries deemed nationally important. To date, China has enforced the Anti-
monopoly Law against state-owned enterprises, and it has stated that this law applies to state-owned
enterprises, but some U.S. companies have expressed concern that enforcement against state-owned
enterprises is more limited.

Another concern relates to the procedural fairness of Anti-monopoly Law investigations. U.S. industry has
expressed concern about insufficient predictability, fairness and transparency in the investigative processes
of the National Development and Reform Commission (NDRC), including NDRC pressure to “cooperate”
in the face of unspecified allegations or face steep fines and limitations imposed by NDRC on the ability
of foreign companies to bring counsel to meetings. U.S. industry has also conveyed that AML agencies
can occasionally only reluctantly accept the presence of counsel at meetings, particularly foreign counsel.
Through the S&ED and JCCT processes over the past few years, the United States was able to secure
commitments from China designed to help address most of these matters, and Chinese agencies have taken

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steps to implement these commitments, although some concerns remain. The United States continues to
work closely with affected U.S. parties as it seeks to ensure that China’s anti-monopoly enforcement
agencies fully implemented these commitments.

In 2015, the United States secured additional commitments from China relating to Anti-monopoly Law
enforcement proceedings. These commitments addressed the protection of confidential business
information, the independence of Anti-monopoly Law decision making, the jurisdiction of courts reviewing
administrative Anti-monopoly Law decisions and anti-monopoly enforcement agencies’ processes for
reconsidering decisions. China also recognized the importance of maintaining coherent rules relating to
intellectual property rights in the Anti-monopoly Law context, including by taking into account the pro-
competitive effects of intellectual property licensing.

In 2016, the United States used all platforms available to encourage China to pursue Anti-monopoly Law
measures and enforcement policies that are consistent with its 2015 commitments. In addition, in June
2016, China’s State Council established a “Fair Competition Review System” designed to prevent
unjustified restrictions on competition through government regulations and activities, an initiative for which
the United States has expressed support.

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COLOMBIA
TRADE SUMMARY

The U.S. trade balance with Colombia shifted from a goods trade surplus of $2.2 billion in 2015 to a goods
trade deficit of $696 million in 2016. U.S. goods exports to Colombia were $13.1 billion, down 19.6 percent
($3.2 billion) from the previous year. Corresponding U.S. imports from Colombia were $13.8 billion, down
2.0 percent. Colombia was the United States' 22nd largest goods export market in 2016.

U.S. exports of services to Colombia were an estimated $6.5 billion in 2015 (latest data available) and U.S.
imports were $3.2 billion. Sales of services in Colombia by majority U.S.-owned affiliates were $6.2 billion
in 2014 (latest data available), while sales of services in the United States by majority Colombia-owned
firms were $82 million.

U.S. foreign direct investment (FDI) in Colombia (stock) was $6.2 billion in 2015 (latest data available), a
13.3 percent decrease from 2014. U.S. direct investment in Colombia is led by mining, manufacturing, and
finance/insurance.

The United States – Colombia Trade Promotion Agreement

The United States – Colombia Trade Promotion Agreement (CTPA) entered into force on May 15, 2012.
The CTPA is a comprehensive free trade agreement, under which Colombia immediately eliminated duties
on 80 percent of U.S. exports, with most remaining tariffs to be phased out over ten years, and tariffs on
some sensitive agricultural products to be phased out over longer periods of time. Colombia also provides
substantially improved market access for U.S. service suppliers under the CTPA. In addition, the CTPA
includes disciplines on customs administration and trade facilitation, technical barriers to trade, government
procurement, investment, electronic commerce, telecommunications, intellectual property rights,
transparency, and labor and environmental protection.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Local Certification Requirements

Colombian directives and guidelines create local certification requirements and other regulatory obstacles
for U.S. companies. Decree 1595, finalized in August 2015, requires “medium and high risk” products to
obtain local safety conformity certifications unless a country agrees to recognize Colombia’s certifications.
To date, Colombia has not articulated the criteria for assessing product risk categories and, thus, has not
clarified the scope of the measure. Other regulations that require local certification include measures
addressing electrical installations and electrical equipment (Resolution 181331 of 2009), illumination and
public lighting, toy safety (Resolution 3388 of 2008), public passenger vehicles, and fuel blends. Some of
these regulations and related modifications were not notified through the WTO. Additionally, some
stakeholders have expressed concerns regarding a lack of coordination among government ministries and
agencies, excessive and duplicative import documentation requirements, vague guidelines, and frequently
changing norms that create uncertainty with respect to the local certification requirements. The U.S.
Government has raised these issues in WTO Technical Barriers to Trade Committee meetings, as well as
bilaterally, including in CTPA TBT Committee meetings.

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Sanitary and Phytosanitary Barriers

Live Cattle

Colombia is now accepting imports of U.S. live cattle. In June 2010, Colombia nominally allowed live
cattle imports from the United States, but at the same time imposed restrictive requirements due to concerns
over bluetongue and leucosis that effectively prevented any such imports. Live cattle imports began in
August 2016, following an agreement between USDA’s Animal and Plant Health Inspection Service and
Colombian sanitary authorities on testing procedures.

Rice

In an exchange of letters dated April 15, 2012, Colombia and the United States agreed that Colombia would
provide access to U.S. rough rice through the Port of Barranquilla, subject to certification that the shipments
were free of Tilletia horrida (a rice smut) and the pre-export fumigation of shipments. Following a
December 2013 report that indicated that Tilletia horrida had been detected in rice production areas in
Colombia, Colombian authorities initiated an epidemiologic survey, stating that the results of the survey
are expected to be released in early 2017. Regarding pre-fumigation, in September 2016 Colombia agreed
to a U.S. request to reduce the mandatory minimum grain moisture content of U.S. rough rice from 12.5
percent to 11 percent. The United States will continue to engage Colombia with the objectives of expanding
the list of eligible ports of entry for U.S. rough rice beyond Barranquilla and securing the eventual
elimination of the pre-export fumigation requirement on a scientific basis.

Risk Categorization and Associated Import Requirements

Through INVIMA Resolution 719 of 2015, Colombia has assigned risk categories to foods with a view to
imposing new requirements on foods depending on the category of risk. While Colombia has indicated it
intends to apply the envisioned categories to both imported and domestic products, the United States is
concerned, in light of international guidelines, about the criteria that Colombia uses to assign risk. Ministry
of Health Decree 539 of March 12, 2014, included numerous new requirements for high risk foods,
including plant registration with INVIMA and the inspection of facilities intending to export to Colombia.
The United States and Colombia exchanged information and views on these issues at the September 2015
meeting of the CTPA Standing Committee on Sanitary and Phytosanitary Matters. On January 7, 2017,
Colombia notified a regulation to the WTO that amends Decree 539 by introducing provisions that allows
for the recognition of trading partners’ food safety systems as equivalent to Colombia’s, and thereby
exempts exporting establishments in those trading partners from individual inspection and approval
requirements. The United States will continue to engage with the Colombian government and affected
stakeholders regarding the impact of these requirements, as well as the process for potential recognition of
the U.S. food safety system.

IMPORT POLICIES

Tariffs

About 80 percent of U.S. exports of consumer and industrial products to Colombia became duty free
immediately upon the CTPA’s entry into force on May 15, 2012. The remaining consumer and industrial
product tariffs are to be phased out within 10 years of entry into force, that is, by January 1, 2021. While
Colombia generally applies variable tariffs to imports of certain agricultural products pursuant to the
Andean Community’s price band system, upon entry into force of the CTPA, Colombia stopped imposing
such tariffs on U.S. agricultural exports. Almost 70 percent of U.S. agricultural exports (by value) became
duty free at entry into force, and duties on most other U.S. agricultural goods will be phased out over a

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period of five to 12 years. Tariffs on the most sensitive products for Colombia, such as certain poultry
products, certain dairy products, sugar, and rice will be phased out over 15 years to 19 years from entry into
force. U.S. agricultural exporters also currently benefit from zero-duty tariff rate quotas on corn, rice,
poultry parts, dairy products, sorghum, dried beans, standard grade beef, animal feeds, and soybean oil. As
quotas are increased and over-quota duties are phased out, access to the Colombian market for those
products will increase.

Nontariff Measures

Truck Scrappage

Prior to March 2013, new freight trucks over 10.5 metric tons (mt) could be legally registered in Colombia
either by paying a “scrappage fee” to the government, or by demonstrating that an old freight truck of
equivalent capacity (“1x1”) had been scrapped and its registration cancelled. In March 2013, without public
consultation or a transition period, Colombia issued Decree 486, which eliminated the option to pay the
“scrappage fee.” As a result, scrapping an old truck of equivalent cargo capacity is now a condition for the
registration of new freight trucks over 10.5 mt. This change in policy has significantly affected previously
robust sales of imported trucks (which are generally over 10.5 mt). In the first year of this policy, such
imports reportedly fell 65 percent, and sales-related administration costs rose by $60 million for all
importers. In the first two years, U.S. exporters lost a reported $600 million in sales, according to industry
officials.

In September 2016, Colombia issued Decree 1517, which indicates that the “1x1” scrappage policy will be
terminated by December 31, 2018. Colombia will maintain the “1x1” system in the interim, but the decree
contemplates the establishment of a new government-administered process for the distribution of the
scrapping certificates required to register a new truck to truck importers and buyers. According to the
decree, the interim system will be maintained until either the government incentive funds used to encourage
scrappage are expended, or “balancing of the market’s supply and demand conditions,” but in any case no
later than December 31, 2018. Importers have raised concerns about the delay in issuing implementing
regulations for this decree, as well as the long timeframe for transition to a free market. Colombia published
the final implementing regulations in February 2017. Under this interim system, importers can apply to
receive the scrapping certificate required to import a new truck via a government-administered process.
They will pay a fee equivalent to 15 percent of the value of the new truck to access the certificate, and
Colombia will continue to link the number of available certificates to vehicles scrapped. The United States
will continue to monitor developments.

The United States continued to raise concerns over the last year regarding the scrappage requirement, as
well as the lack of a transparent public consultation process, in multiple fora and at senior and working
levels, including in the Organization for Economic Cooperation and Development (OECD) Trade
Committee in the context of Colombia’s accession to the OECD. The United States will continue to engage
with Colombia regarding the scrappage policy, including with respect to changes to the policy, and press
Colombia for a resolution of this issue to effectively reopen the market to U.S. products.

Internal Taxes on Distilled Spirits and Alcohol Monopolies

On December 19, 2016, President Santos signed into law a bill reforming tax treatment of distilled spirits
and oversight of monopolies at the department (provincial government) level. Under the previous tax
regime (Law 788 of 2002, Chapter V, as amended by Law 1393 of 2010), Colombia assessed a consumption
tax on distilled spirits with a system of specific rates per degree (half percentage point) of alcohol strength,
and arbitrary breakpoints based on alcohol content appeared to result in a lower tax rate on spirits produced
locally. While the CTPA provides certain exceptions for Colombia’s measures relating to the taxation of

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alcoholic beverages, those exceptions expired May 15, 2016. The EU sought consultations with Colombia
regarding taxation and departmental practices with respect to imported spirits under the WTO dispute
settlement mechanism in January 2016. The United States participated in those consultations, held in March
2016, as a third party.

The new law, effective January 1, 2017, replaces the previous tax structure (including the breakpoints) with
a combination of a “specific tax” based on alcohol content and an ad valorem tax on the retail price. The
law also includes provisions that are aimed at disciplining practices of the department level alcohol
monopolies. However, the United States remains concerned regarding a provision that would appear to
allow for special protections for a distilled spirit called “aguardiente,” and continues to have questions on
the process for aligning department-level practices with the new law. Importers are also seeking greater
clarity on technical provisions that, depending on how they are implemented, could impact market access,
including with respect to price certifications, labeling requirements, and certificates of good manufacturing
processes. The United States will continue to monitor the implementation of the new legislation and engage
with Colombia regarding U.S. concerns.

Mobile Phones Decree

On October 16, 2015, Colombia’s trade ministry published Decree 2025, which “establishes measures to
control the import and export of smart phones and their parts” as part of its strategy to address phone theft.
The decree established extensive administrative requirements for trade in mobile phones and created
barriers to export them even for legitimate purposes, such as warranty repairs or recycling. In particular,
the decree mandates that each mobile phone have a government-issued International Mobile Equipment
Identity (IMEI) verification certificate at the time of import and requires all importers and exporters to pre-
register with the National Police in order to trade in mobile phones. Additionally, the decree prohibited all
imports and exports of mobile devices and parts via mail or express delivery (often the method of shipment
for purchases by private individuals), and travelers entering Colombia were limited to carrying no more
than three devices as personal items. Both phone manufacturers and express mail companies have raised
concerns about the decree.

On December 23, 2016, the trade ministry published Decree 2142, which modifies a number of Decree
2025’s provisions. In particular, Decree 2142 reverses the prohibition on imports of mobile devices and
parts via mail or express delivery, with some limitations as to the number of devices that can be shipped by
those means, and allows more flexibility with respect to the documentary requirements for the export of
used phones, e.g., for servicing and repair, or recycling and safe disposal of electronic waste. (The limit on
how many devices travelers can carry into the country remains in place, as do the requirements with respect
to IMEI verification and registration of importers and exporters with the National Police.) However,
concerns remain regarding the government of Colombia’s operational capacity to implement the system
established in Decree 2025 of 2015, as amended. The United States will continue to monitor the
implementation of these decrees and engage with Colombia as appropriate to facilitate legitimate trade in
cell phones.

Biologic and Biosimilar Medicines Regulations

In September 2014, Colombia issued a decree establishing a framework for marketing approval of
biological and biosimilar medicines. It established three approval pathways. The third pathway, the
“abbreviated comparability” pathway, appears to be incompatible with international norms for biosimilars
pathways. It remains unclear what data, clinical trials, or other information will be required to demonstrate
biosimilarity with the reference products. The decree takes effect upon the entry into force of implementing
guidelines. The stability guideline (Resolution 3690 of August 2016) enters into force in August 2017. It
establishes that INVIMA, Colombia’s sanitary authority, will accept stability studies of biologic medicines

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in accordance with international standards. However, the immunogenicity guideline (Resolution 4490 of
September 2016, which was originally to enter into force in September 2017, was reopened for public
comment early in 2017) may not require clinical trials for assessing the potential for unwanted immune
responses (immunogenicity) of biosimilars. The United States will continue to monitor the implementation
of the Decree to assess its impact on fair competition in the Colombian market.

Marketing Approval Dependent on Price Review

The National Development Plan 2014-2018 law gives the health ministry the authority to require two
additional assessments before medicines and medical devices can receive or renew a sanitary registration,
which is required before a product can be sold in Colombia: (1) a health technology assessment by the
Institute for Health Technological Evaluation; and (2) a price determination by the health ministry.
Stakeholders report that Colombia’s process for granting and renewing sanitary registrations for innovative
pharmaceutical products has slowed since the National Development Plan became law in May 2015. The
Ministry of Health is currently developing implementing regulations for the relevant provisions.

“Luxury Tax” on Vehicles Valued at $30,000 and Above

Colombia charges a 16 percent consumption tax for vehicles with a Free on Board (FOB) value of $30,000
and above. Vehicles below this value are subject to a tax of eight percent. The $30,000 value has not been
adjusted for inflation in two decades. As a result, an increasing number of vehicles, particularly imported
vehicles, fall into the higher tax bracket. (Generally, cars containing above three liter engines have an FOB
value over $30,000.) The majority of vehicles assembled in Colombia typically fall below the $30,000
level. Importers reportedly frequently choose to strip vehicles of the latest safety and technology advances
to keep the value under $30,000 and avoid paying at a higher tax rate.

Ethanol

In April 2014, Colombia’s Ministry of Mines and Energy published a resolution that allowed Colombia to
set import quantity limits on ethanol and establish a licensing mechanism to allow for imports in cases of
domestic shortfall. Following U.S. engagement on this issue, in November 2016, Colombia issued a new
resolution that reverses the earlier measure, effective May 2017. At that time, Colombia had indicated that
it would be publishing regulations on carbon footprint requirements for ethanol, which could affect market
access for U.S. corn-based ethanol. In late January 2017, Colombia published a draft decree for public
comment. The United States will continue to monitor developments closely and engage with Colombia
regarding any concerns.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Colombia remained on the Watch List in the 2016 Special 301 Report, and an Out-of-Cycle Review was
initiated to assess Colombia’s commitment to the intellectual property provisions of the CTPA and to
monitor the implementation of the National Development Plan. Colombia’s implementation of certain
intellectual property rights (IPR) provisions of the CTPA was interrupted in 2013 when the Colombian
Constitutional Court invalidated on procedural grounds the law enacting those obligations. While
Colombia has made progress on implementing some of the remaining IPR provisions in the CTPA,
including on accession to the Budapest Treaty and the drafting of copyright amendments, certain other
obligations remain outstanding. Colombia has not yet introduced or passed into law the copyright
amendments mentioned above, acceded to the 1991 Act of the International Convention for the Protection
of New Varieties of Plants, or developed Internet service provider liability limitations and notice and
takedown procedures. The United States will continue to engage with Colombia at political and technical
levels to complete implementation as soon as possible.

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Companies remain concerned with widespread intellectual property infringement, including unauthorized
camcording in movie theaters, physical counterfeiting and piracy at the border and in the San Andresitos
market, online and mobile piracy, and the use of micro-chipped Free-to-Air (FTA) boxes, used exclusively
for pirating broadcasting signals. The National Development Plan included a requirement to develop an
IPR enforcement policy to help guide, coordinate, and raise awareness of IPR enforcement. Other
provisions of the National Development Plan, depending on how they are interpreted and implemented,
may structurally undermine innovation and intellectual property rights, such as by establishing a role for
the Ministry of Health in the examination of pharmaceutical patent applications. The United States will
continue to engage bilaterally to resolve these issues.

SERVICES BARRIERS

The CTPA grants U.S. service suppliers substantially improved market access. Some restrictions, such as
economic needs tests and residency requirements, remain in sectors such as accounting, tourism, legal
services, insurance, distribution services, advertising, and data processing.

Telecommunications

Roaming

In Section 1377 Reports, USTR has expressed concerns with Colombia’s enforcement of roaming
arrangements, particularly with regard to arrangements between dominant providers and their smaller
competitors. Roaming arrangements are critical for new entrants because they rely on roaming to
supplement their network in their build-out phase, in order to offer a commercially viable service. A U.S.
invested operator that recently entered the mobile services market in Colombia has expressed concern that
the technical and financial aspects of its roaming arrangements over the past several years impede its ability
to compete in the market. In February 2017, the Communication Regulation Commission (CRC) proposed
a regulation on wholesale voice and data roaming services in Colombia. The United States will look to
Colombia to ensure the decisions of the CRC with respect to roaming are consistent with Colombia’s
obligations under the GATS and the CTPA, including that such services are provided on reasonable and
non-discriminatory terms and conditions.

Spectrum

In May 2015, the Ministry of Information Technologies and Communication (MinTIC) issued a Request
for Proposal (RFP) for allocation of the 700 MHz spectrum band. This band is particularly useful for new
entrants because of technical characteristics that support coverage of larger geographic areas with less
infrastructure, enabling a new entrant to more quickly and more economically build up its customer base,
particularly where population density is lower. Given the importance of this band to new entrants, the
OECD in its 2014 review of Colombia’s Telecommunications Policy and Regulation recommended that
the expected auction of this band should include conditions that specifically allow small operators to have
access to it. Despite clear interest on the part of some mobile operators, MinTIC has not yet proceeded
with the auction, a delay that could negatively affect the competitive dynamics of the mobile market. In
February 2017, MinTIC published draft auction rules for public comment. The United States will continue
to monitor these developments, with a view to ensuring that Colombia implements its trade commitments
with respect to spectrum allocation, including that procedures be both timely and non-discriminatory.

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Distribution Services

Commercial Agency

A section of Colombia’s commercial code provides protections for agents that can make it difficult and
costly for companies to terminate a commercial agent (sales representative) contract. The United States
has been working with Colombia to address this issue and will continue to monitor progress.

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COSTA RICA
TRADE SUMMARY

The U.S. goods trade surplus with Costa Rica was $1.6 billion in 2016, a 1.7 percent decrease ($26 million)
over 2015. U.S. goods exports to Costa Rica were $5.9 billion, down 3.0 percent ($182 million) from the
previous year. Corresponding U.S. imports from Costa Rica were $4.3 billion, down 3.5 percent. Costa
Rica was the United States' 37th largest goods export market in 2016.

U.S. exports of services to Costa Rica were an estimated $1.8 billion in 2015 (latest data available) and
U.S. imports were $2.6 billion. Sales of services in Costa Rica by majority U.S.-owned affiliates were $1.6
billion in 2014 (latest data available), while sales of services in the United States by majority Costa Rica-
owned firms were $63 million.

U.S. foreign direct investment (FDI) in Costa Rica (stock) was $1.5 billion in 2015 (latest data available),
a 1.6 percent increase from 2014. U.S. direct investment in Costa Rica is led by manufacturing,
professsional, scientific, and technical services, and information.

Free Trade Agreement

The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR, or the
Agreement) entered into force for the United States, El Salvador, Guatemala, Honduras, and Nicaragua in
2006, for the Dominican Republic in 2007, and for Costa Rica in 2009. The CAFTA-DR significantly
liberalizes trade in goods and services, as well as includes important disciplines relating to customs
administration and trade facilitation, technical barriers to trade, government procurement, investment,
telecommunications, electronic commerce, intellectual property rights, transparency, labor, and
environment.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Cosmetics, Nutritional and Dietary Supplements

The Costa Rican Ministry of Health requires a Good Manufacturing Practices (GMP) certificate or a
License of Operation as a prerequisite for approval of cosmetics and toiletries registrations in Costa Rica.
However, U.S. manufacturers have difficulty in complying with this requirement because a U.S. Federal
Government certificate of this kind does not exist. U.S. companies have, in some cases, been able to comply
with the requirement by submitting documents from state or local authorities or trade organizations.
However, for U.S. manufacturers unable to obtain such documents, the regulation results in an inability to
gain the approval necessary to sell in the Costa Rican market. The United States has explained to the
relevant authorities in Costa Rica that the U.S. Federal Government does not issue the GMP certificate, but
the issue persists.

The U.S. Government issues export certificates for cosmetic products that are legally marketed in the United
States, when required for export. These certificates can be issued for a specific product or list of products,
or generally for a firm. U.S. cosmetic firms need to submit a request to the U.S. Food and Drug
Administration for such certificates. The U.S. Government has established a system for foreign
governments to verify if it has issued an export certificate to a U.S. cosmetic firm.

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Beginning in 2014, U.S. producers of dietary supplements have expressed concerns regarding Costa Rican
product registration and technical regulations related for nutritional and dietary supplements.

Because the United States does not regulate nutritional and dietary supplements as pharmaceuticals, U.S.
manufacturers of these products generally do not have the certification and product analysis required under
the Central American Technical Regulation for Natural Medicines. In one medicine-related area, the U.S.
Government has established Good Manufacturing Practices (GMP) regulations for dietary supplements
marketed in the United States. These GMP regulations are similar to those available under U.S. GMP
regulations for pharmaceuticals products. U.S. dietary supplement firms that market their products in the
United States and export their products should be able to demonstrate their compliance with U.S.
regulations, if required.

Costa Rica’s telecommunications regulator (SUTEL) imposes a requirement for retesting and
recertification of telecommunications hardware, following what can be frequent software updates.
Stakeholders have raised concerns that Costa Rica does not follow international procedures for testing and
certification mobile handsets and other ICT products; that these country-specific requirements can lead to
redundant testing, particularly when products are required to undergo testing in both exporting and
importing countries; and that these requirements are burdensome on U.S. software developers, posing an
obstacle to international trade.

Sanitary and Phytosanitary Barriers

In September 2013, Costa Rica banned the import of fresh potatoes from the United States, allegedly due
to excess soil in some shipments and the presence of “zebra chip,” a disease that causes striping of potatoes.
Costa Rica reopened the market to U.S. chipping potatoes in February 2016 after the negotiation of new
import requirements. Imports resumed in September 2016, but according to U.S. industry sources, there
are problems with the implementation of the import protocol by the Costa Rican government. Import permit
issuance takes significantly longer than is reasonable, preventing full market normalization. Costa Rican
importers are also in discussions with U.S. potato exporters concerning the packing methods used to ship
potatoes, which has led some importers to switch to Canadian potatoes which are being shipped using the
preferred packing material.

During the first half of 2016, importers complained that the Ministry of Agriculture (MAG) used
phytosanitary import permits as a tool for stopping or delaying imports of onions from the United States
without clear phytosanitary concerns, and that MAG’s failure to issue permits in a timely manner resulted
in the loss of market access for onions this year. Although Costa Rica eventually issued all pending permits,
the untimely release of the permits during local harvest time caused a temporary (and unnecessary) glut of
onions in the market.

Another phytosanitary issue that began to impede agricultural imports from the United States in 2016
resulted from a 2012 MAG Executive Decree (No. 36999), which created an importer registry as a
traceability measure for imports of plant origin. Local producers are not subject to these requirements. The
Decree also requires importers to prove that they have adequate warehouse space for the quantity of product
to be imported before import permits will be issued. The availability of free storage space must be
corroborated by officials from the State Phytosanitary Service (SFE). Companies reported in 2016 that
SFE was not conducting required warehouse inspections in the timeframe stated in the Decree leading to
major financial losses. In addition, several small importers informed that they would lose tariff-rate quota
(TRQ) allocations in 2016 because of the delays in having their warehouses inspected in time, and as a
result, they would be penalized for not having filled their allocations and may lose access to the TRQ
allocation for 2017.

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IMPORT POLICIES

Tariffs

As a member of the Central American Common Market, Costa Rica applies a harmonized external tariff on
most items at a maximum of 15 percent, with some exceptions.

Under the CAFTA-DR, however, 100 percent of originating U.S. consumer and industrial goods have
entered Costa Rica duty free since January 1, 2015. Nearly all textile and apparel goods that meet the
Agreement’s rules of origin also enter Costa Rica duty free and quota free. In addition, more than half of
U.S. agricultural exports currently enter Costa Rica duty free under the Agreement. Costa Rica will
eliminate its remaining tariffs on virtually all U.S. agricultural products by 2020, on chicken leg quarters
by 2022, on rice by 2025, and on dairy products by 2028. For certain agricultural products (rice, pork,
dairy, and poultry), TRQs permit duty-free access for specified quantities during the tariff phase-out period,
with the duty-free amount expanding during that period. Costa Rica’s CAFTA-DR commitments provide
for liberalizing trade in fresh potatoes and onions through continual expansion of a TRQ, rather than by the
reduction of the out-of-quota tariff.

Nontariff Measures

Customs and Trade Facilitation

Under the CAFTA-DR, all CAFTA-DR countries, including Costa Rica, committed to improve
transparency and efficiency in administering customs procedures. The CAFTA-DR countries also
committed to ensuring greater procedural certainty and fairness in the administration of these procedures,
and agreed to share information to combat illegal transshipment of goods.

Costa Rica’s Information Technology Customs Control (TICA) system is designed to allow for a single
automated customs declaration process, with a centralized database, including electronic payment,
integrated risk analysis, and connectivity with public and private institutions. Some have characterized
TICA as one of the best customs systems in Central America. However, the system has suffered
breakdowns as the volume of entries has increased since its implementation in 2006, and upgrades have
been needed to facilitate the import and export of goods without undue delays. In March 2016, Costa Rican
Customs announced the implementation of improvements to the TICA system to automate all customs
operations (previously about 80 percent of operations were automated). The new version completes a two-
year improvement process to customs’ technology platform.

Costa Rica is in the process of ratifying the WTO Trade Facilitation Agreement (TFA), which must be
approved by the Costa Rican Legislative Assembly and the Costa Rican Constitutional Court. The bill that
the Government of Costa Rica submitted for ratification includes provisions to assist with TFA
implementation, including the establishment of a trade facilitation council, which would include private
sector representatives and have the authority to make binding decisions. Opposition parties have criticized
the inclusion of the private sector on this council, delaying ratification of the bill.

Internal Taxes on Distilled Spirits

Costa Rica currently assesses a specific excise tax on distilled spirits that is calculated as a percentage of
alcohol per liter, based on three specific rates (Law 7972). The highest rate applies to spirits bottled at a
rate above 30 percent alcohol-by-volume (abv). While the locally produced spirit (produced in the largest
volume by the state-owned alcohol company) is bottled at 30 percent abv, the vast majority of
internationally traded spirits are bottled at 40 percent. Breakpoints for the tax rates based on alcohol content

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appear to result in a lower tax rate on spirits produced locally. Furthermore, local producers pay the tax
within the first 15 days of each month on sales made during the prior month, while importers must pay the
tax prior to release of their product from customs.

GOVERNMENT PROCUREMENT

Some U.S. company representatives have commented that they find it difficult to compete with domestic
suppliers in Costa Rican government procurement because bids are often due within three to six weeks of
the procurement announcement. U.S. companies view the short deadlines as reflecting Costa Rica’s
reluctance to attract foreign bidders to its government procurement processes. The United States will
continue to monitor Costa Rica’s government procurement practices to ensure they are applied consistent
with CAFTA-DR obligations. U.S. companies also have indicated that the private sector (foreign and
domestic) appears to be increasingly disadvantaged in public bids when competing against Costa Rican
state owned enterprises. Leading business associations filed administrative complaints in 2016, claiming
the Finance Ministry awarded an electronic billing contract to a public entity at well above the costs offered
by private sector players.

The electronic procurement platform “Mer-link,” now known as “SICOP,” provides a single purchasing
platform for all participating ministries with an entirely paperless procurement process based on a secure
database, allowing enhanced levels of transparency and competition in the procurement process. More than
70 government entities have adopted the program to date. However, implementation has been slow; 2016
reports noted just small fraction of transactions are done through the SICOP/Mer-link system.

Costa Rica is not a signatory to the WTO Agreement on Government Procurement. Costa Rica became an
observer in June 2015.

EXPORT SUBSIDIES

Under the CAFTA-DR, Costa Rica may not adopt new duty waivers or expand existing duty waivers that
are conditioned on the fulfillment of a performance requirement (e.g., the export of a given level or
percentage of goods). Costa Rica has modified its free trade zone regime in order to conform to this
requirement. Tax holidays are available for investors in free trade zones. The Free Trade Zone Regime is
defined in Costa Rica as a set of incentives and benefits granted by the country to companies making new
investments and complying with local requirements and obligations. This regime is governed by the Free
Zone Regime Law, Number 7210, and its regulations. Costa Rica’s tax incentives and benefits are
standardized. They apply to any and all companies equally, so there is no need for individual negotiations.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Costa Rica was again on the Watch List in the 2016 Special 301 report. Costa Rican officials engaged in
discussions with USTR during 2016 to identify details for a possible intellectual property rights (IPR) work
plan, an effort that remains in process. The United States continues to urge Costa Rica to place a higher
priority on IPR protection and enforcement, including impose deterrent penalties where appropriate. Other
concerns include Costa Rica’s failure to follow through on long-stated plans to end government use of
unlicensed software, to modernize its notice and takedown regime available for use by online service
providers, to provide greater clarity and transparency in the protection of geographical indications, to help
ensure that no party is awarded exclusive rights to use generic terms, and to preserve market openness and
access for U.S. products. The United States will continue to monitor Costa Rica’s implementation of its
IPR obligations under the CAFTA-DR.

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SERVICES BARRIERS

Insurance

Foreign companies operate in most segments of the market. However, mandatory insurance categories such
as worker’s compensation and basic automobile liability are still serviced only by the National Insurance
Institute (INS), despite being open to new entrants. New market entrants (private insurance companies)
continue to face challenges in light of the market power INS derives from its former monopoly position.
Specific concerns relate to deceptive advertising by the former monopoly, a cumbersome and
nontransparent product approval process, and the extension of exclusivity contracts between INS and
insurance retailers designated as agents.

Telecommunications

Under CAFTA-DR, Costa Rica has progressively opened important segments of its telecommunications
market, including private network services, Internet services, and mobile wireless services, which are now
formally open for competition as a matter of law or regulation. While this market opening is a notable
achievement, Costa Rica’s new wireless service providers continue to face obstacles, including reluctance
by some municipal governments to approve cell tower construction necessary to support new providers and
expand coverage areas.

On December 9, 2016, the Telecommunications Superintendence (SUTEL) published in the Official


Gazette a tender for the auction of 70 Megahertz (MHZ) of radio spectrum starting in February 2017 with
the main objective of improving the quality of telecommunications services and avoiding concentration of
spectrum in the hands of specific suppliers. After an analysis of 11 telecommunication markets, SUTEL
determined that four markets (international telephony, fixed Internet, international roaming, and
telecommunications transit) were sufficiently competitive to obviate economic regulation, pursuant to
Article 73 of the Law No. 7593 on the Regulatory Authority of Public Services.

INVESTMENT BARRIERS

Costa Rica’s regulatory environment can pose significant barriers to investment. One common problem is
inconsistent action between institutions within the central government or between institutions in the central
and municipal levels of government. The resulting inefficiency in regulatory decision-making is especially
noticeable in infrastructure projects, which can languish for years between the award of a tender and the
start of project construction.

OTHER BARRIERS

Some U.S. firms and citizens have found corruption in government, including in the judiciary, to be a
concern and a constraint to successful investment in Costa Rica. Administrative and judicial decision-
making appear at times to be inconsistent, nontransparent, and very time consuming.

In July 2009, Costa Rica notified levels of agricultural domestic support to the WTO for 2007 that were
above its $15.9 million Total Aggregate Measurement of Support (TAMS) ceiling on trade-distorting
domestic support. Costa Rica’s subsequent notifications to the WTO for the years 2008 through 2012 listed
domestic support expenditures at ever increasing levels, reaching $109.7 million in 2010. Notifications for
2014 and 2015 listed domestic support expenditures of $60.4 million and $4 million, respectively. Between
2009 and 2015, Costa Rica’s price support for rice accounted for most of its notified TAMS, and rice
accounted for a majority of its notified TAMS prior to 2009. In May 2013, the government of Costa Rica
issued Decree #37699-MEIC, which reduced the price support by a modest amount and stated that the then

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current price support mechanism for rice would be eliminated starting in March 2014. However, in January
2014, Costa Rica delayed that deadline by a year until March 2015. In January 2015, Costa Rica announced
a four-year safeguard, imposing an additional 24.88 percent tariff on pounded rice. The safeguard amount
will decline annually to a final tariff of 6.22 percent for the last year. The safeguard affected out-of-quota
rice imports from the United States. On February 27, 2015 the government of Costa Rica published
Executive Decree #38884-MEIC which established producer prices for dry and clean paddy rice and also
set the minimum and maximum price for different presentations and qualities of milled rice, either locally
produced or imported. Those prices took effect on June 8, 2015. The overarching issue of excessive
domestic support for rice remains, as the reference price system does nothing to change the effective level
of the support, but only changes its classification.

In a separate rice issue, in 2015 Costa Rican customs authorities initiated an origin verification process for
rice imported during 2013 from the United States. The authorities questioned the origin of rice (primarily
imported under the CAFTA-DR tariff rate quota) imported by at least 15 different importers. The importers,
many of which are small importers who took advantage of the TRQs, faced steep fines if they could not
provide all the information the Customs Department required to prove the country of origin as the United
States. Importers were asked to provide an exhaustive amount of information, unrelated to the question of
whether the rice is of U.S. origin, and official USDA documents, such as APHIS’ phytosanitary export
certificates and FGIS’ rice grading certificates, that are not proof of origin. In October 2016, after a visit
to U.S. rice production regions by Costa Rican government officials, the Customs Department issued a
resolution confirming that the rice was U.S. origin rice.

As the Costa Rican government has increased tax collection efforts in recent years, several U.S. companies
have found themselves facing what they consider to be novel or inconsistent interpretations of tax
regulations and principles. Adoption of a new set of transfer-pricing regulations in September 2013
represented a significant advance by the Costa Rican government in the area of transparency and
predictability. The measure, Decree 37898-H, protects the principle of free competition. In June 2016, the
Costa Rican General Direction of Taxation released for public consultation draft rules concerning annual
transfer pricing. The United States will continue to monitor implementation of the regulations and other
tax measures.

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DOMINICAN REPUBLIC
TRADE SUMMARY

The U.S. goods trade surplus with the Dominican Republic was $3.1 billion in 2016, a 26.7 percent increase
($653 million) over 2015. U.S. goods exports to the Dominican Republic were $7.8 billion, up 9.4 percent
($672 million) from the previous year. Corresponding U.S. imports from the Dominican Republic were
$4.7 billion, up 0.4 percent. The Dominican Republic was the United States' 33rd largest goods export
market in 2016.

U.S. exports of services to the Dominican Republic were an estimated $1.6 billion in 2015 (latest data
available) and U.S. imports were $4.4 billion. Sales of services in the Dominican Republic by majority
U.S.-owned affiliates were $1.3 billion in 2014 (latest data available).

U.S. foreign direct investment (FDI) in the Dominican Republic (stock) was $1.4 billion in 2015 (latest
data available), a 11.9 percent increase from 2014. U.S. direct investment in the Dominican Republic is
led by manufacturing, information, and wholesale trade.

Free Trade Agreement

The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR or the
Agreement) entered into force for the United States, El Salvador, Guatemala, Honduras, and Nicaragua in
2006, for the Dominican Republic in 2007, and for Costa Rica in 2009. The CAFTA-DR significantly
liberalizes trade in goods and services, as well as includes important disciplines relating to customs
administration and trade facilitation, technical barriers to trade, government procurement, investment,
telecommunications, electronic commerce, intellectual property rights, transparency, and labor and
environment.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Regulation of Steel Rebar

Multiple U.S. exporters of steel rebar used for construction have complained that a Dominican technical
regulation (RTD 458) administered by the Ministry of Industry and Commerce’s (MIC) Dominican Institute
for Quality (INDOCAL) constitutes a barrier to trade. Since 2012, RTD 458 has required that all imported
steel rebar be subject to conformity assessment procedures in the form of sampling at the discharge port
and testing by third party laboratories. Although U.S. steel rebar is produced by certified mills in the United
States, Dominican authorities require every heat of imported rebar to be sampled and tested by third party
laboratories. Because no suitable third party laboratories are present in the Dominican Republic, samples
have had to be sent back to the United States for testing. These conformity assessment procedures appear
to present unnecessary obstacles to international trade, deviate from international standards, lack
transparency in their application, and have unduly increased the cost and time required for
commercialization of rebar in the Dominican Republic.

RTD 458 also raises significant national treatment concerns, as domestic steel rebar producers are not
subject to the same type of testing required for imports. According to RTD 458, both imported and locally
produced steel rebar is subject to random sampling and inspection of production plants, however, only
imported rebar is additionally subject to third party testing by accredited laboratories.

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The United States has repeatedly engaged the Dominican government on this issue and raised the issue on
the margins of the WTO Technical Barriers to Trade Committee meeting in November 2016. However,
Dominican authorities have yet to reform its practices to eliminate obstacles to international trade and
ensure imported rebar from the United States is treated no less favorably than domestically manufactured
rebar.

On July 12, 2016, the Dominican government issued a statement announcing the enforcement of NORDOM
53, a local regulation for labeling prepackaged foods. Beginning January 1, 2017, the Spanish language
label on prepackaged products must be applied at the point of origin, instead of in the destination country
as is the usual practice. Enforcement of the regulation will initially focus on dairy products, but the
Dominican government has indicated it will extend enforcement to other products. The United States will
continue to encourage the Dominican government to eliminate the requirement to label at point of origin or
delay its enforcement so as to provide more time for clarification and proper implementation.

IMPORT POLICIES

Tariffs

As a member of the Central American Common Market, the Dominican Republic applies a harmonized
external tariff on most items at a maximum of 15 percent, with some exceptions.

However, under the CAFTA-DR, as of January 1, 2015, 100 percent of originating U.S. consumer and
industrial goods enter the Dominican Republic duty free. Nearly all textile and apparel goods that meet the
Agreement’s rules of origin enter the Dominican Republic duty free and quota free, creating economic
opportunities for U.S. and regional fiber, yarn, fabric, and apparel manufacturing companies.

Also under the CAFTA-DR, as of 2016, 83 percent of U.S. agricultural products qualify for duty-free
treatment when exported to the Dominican Republic. The Dominican Republic will eliminate remaining
tariffs on nearly all agricultural goods by 2020, and on chicken leg quarters, some dairy products, and rice
by 2025. Tariff-rate quotas (TRQs) permit duty-free access during the tariff-phase out period for specified
quantities of 47 different agricultural products, including ice cream, selected cuts of beef, cheddar cheese,
and yogurt, with the duty-free quantity progressively increasing during the tariff phase-out period.

Nontariff Measures

The Dominican Ministry of Agriculture continues to administer the issuance of sanitary and phytosanitary
import licenses as a means to manage trade in sensitive commodities. The United States continues to raise
concerns regarding this matter with Dominican authorities and is working to eliminate this practice. This
is a regular concern with respect to trade in some sensitive products (e.g., dry beans, potatoes, onions, garlic,
and recently hatching eggs), but intermittently with respect to other products as well.

Under the CAFTA-DR, TRQs for agricultural products are to be made available for the entire calendar year,
beginning on January 1. However, the Dominican Republic often has not issued quota allocations until
several months into the year. In addition, both the issuance of quotas for sensitive products and the
distribution of import licenses, which allow importers to exercise their quota rights, have frequently been
delayed. While the Ministry of Agriculture made substantial improvements to its administration of TRQs
in 2013 and 2014, 2015 CAFTA-DR quotas were not issued until March, while 2016 quotas were issued on
February 5. The United States will continue to engage on these issues with the Dominican Republic and
will monitor its performance with regard to the timely opening of the TRQs, the timely distribution of

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import licenses, and the distribution of appropriate quota volumes, to allow TRQ products to enter the
Dominican Republic as of January 1 of each year.

The Dominican Republic maintains a ban on imports of all used vehicles over five years old, and took an
exception under the CAFTA-DR to the obligation not to impose import restrictions for this measure. Since
late 2011, importers of U.S.-made used vehicles less than five years old have reported that the Dominican
customs service has frequently challenged the eligibility of those vehicles to be considered as originating
and therefore eligible for preferential tariff treatment under the CAFTA-DR, citing technical difficulties in
demonstrating compliance with the rules of origin. The United States continues to engage with the
Dominican Republic to address complaints received from exporters of used cars of U.S. manufacture.

GOVERNMENT PROCUREMENT

The CAFTA-DR requires that procuring entities use fair and transparent procurement procedures, including
advance notice of purchases and timely and effective bid review procedures, for procurement covered by
the Agreement. Under the CAFTA-DR, U.S. suppliers are permitted to bid on procurements of most
Dominican government entities, including key ministries and state-owned enterprises, on the same basis as
Dominican suppliers. The anticorruption provisions in the CAFTA-DR apply inter alia to government
procurement. Nevertheless, U.S. suppliers have complained that Dominican government procurement is
not always conducted in a transparent manner and that corruption is a problem. The U.S. Government has
engaged with the Dominican government on this issue and transparency has increased in its procurement
system over the last few years. The United States will continue to monitor the Dominican Republic’s
government procurement practices to ensure they are applied in a manner consistent with CAFTA-DR
obligations.

The Dominican Republic is neither a signatory nor an observer to the WTO Agreement on Government
Procurement.

SUBSIDIES

The Dominican Republic does not have export promotion schemes other than tariff waivers for inputs
imported by firms in the free trade zones. Under Law 139 of 2011, the Dominican Republic levies a 2.5
percent tax on goods sold from free trade zones into the local market.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

In 2016, the Dominican Republic remained on the Watch List in the Special 301 Report. Positive
developments include a successful enforcement action against the manufacture and distribution of
counterfeit medicines and a modest reduction in the large backlog of pending patent applications.
Nevertheless, ongoing concerns include unaddressed satellite signal piracy, the widespread availability of
pirated and counterfeit goods, government and private sector use of unlicensed software, and blanket
administrative denials of requests for patent term adjustment. The United States will continue to work with
the Dominican Republic to address these and other issues.

SERVICES BARRIERS

Telecommunications

The United States has expressed a number of concerns with the timeliness and effectiveness of the
telecommunications regulator in the Dominican Republic, INDOTEL, in carrying out its obligations under
CAFTA-DR and the WTO General Agreement on Trade in Services, including ensuring that its major

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suppliers offer a cost-based termination rate, timely allocation of spectrum in an objective and transparent
manner, facilitation of roaming arrangements, and prompt decisions on the renewal of operators’ concession
agreements. The United States continues to work with the Dominican Republic to ensure that it fulfils its
obligations to an open and competitive telecommunications sector.

OTHER BARRIERS

Many U.S. firms and citizens have expressed concerns that corruption in government, including in the
judiciary, continues to be a constraint to successful investment in the Dominican Republic. Administrative
and judicial decision making at times is perceived as inconsistent, nontransparent, and overly time-
consuming.

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ECUADOR
TRADE SUMMARY

The U.S. goods trade deficit with Ecuador was $1.9 billion in 2016, a 14.1 percent increase ($236 million)
over 2015. U.S. goods exports to Ecuador were $4.2 billion, down 28.3 percent ($1.6 billion) from the
previous year. Corresponding U.S. imports from Ecuador were $6.1 billion, down 18.8 percent. Ecuador
was the United States' 43rd largest goods export market in 2016.

Sales of services in Ecuador by majority U.S.-owned affiliates were $1.2 billion in 2014 (latest data
available), while sales of services in the United States by majority Ecuador-owned firms were $2 million.

U.S. foreign direct investment in Ecuador (stock) was $429 million in 2015 (latest data available), a 25.5
percent decrease from 2014. U.S. direct investment in Ecuador is led by mining, wholesale trade, and
manufacturing.

Trade Agreements

The accession of Ecuador to the European Union’s Multiparty Trade Agreement with Colombia and Peru
became effective January 1, 2017. Many EU products exported to Ecuador will be charged lower tariffs
than products manufactured in the United States. Most import tariffs on EU manufactured products were
eliminated upon the agreement’s entry into force or will be phased out gradually, depending on the product.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Batteries and Secondary Cells

U.S. companies expressed concerns that technical regulation RTE INEN 105 disrupts trade in secondary
cells and batteries. On July 1, 2016, the Ministry of Industries and Productivity issued Resolution 16-227
mandating compliance with RTE INEN 105, which makes compulsory international standards regarding
secondary cells and batteries that are normally voluntary. Exporters report they have not been able to
identify a qualified laboratory to certify that batteries subject to the regulation comply with the standards.
As of December 2016, Ecuadorian authorities are in discussions with industry representatives to seek a
solution.

Processed Foods – Quality Compliance Requirements

Ecuador requires a variety of certificates depending on the type of processed food. Executive Decree No.
4522, issued in November 2013 by the Ministry of Health of Ecuador’s National Agency for Regulation,
Control, and Sanitary Surveillance, requires that all processed and packaged food products include a label
with a set of colored bars indicating low, medium, or high content of salt, sugar, and fat. Ecuador requires
a certificate demonstrating compliance with the labeling provisions pursuant to Committee of Foreign Trade
(COMEX) Resolution 116 issued December 4, 2013. A separate certificate of recognition is required for
food products for which the Ecuadorian Standards Institute (INEN) has issued a standard. The list of
products requiring this separate certificate includes all U.S. and third-country processed food product
imports. Implementation of this requirement reduced the imports of dozens of high value added food
products from the United States, including preserved meat and vegetable products, jams, sauces, and other
food products. In addition, processed food products of animal origin require prior authorization of

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Ecuador’s animal and plant health authority, the Ecuadorian Agency for Agricultural Quality Assurance
(AGROCALIDAD).

The United States continues to work with Ecuadorian authorities to explore alternatives to the certificates,
including the use of State or Federal Certificates of Free Sale, a Supplier’s Declaration of Conformity, or a
determination of equivalence with INEN’s requirements.

Sanitary and Phytosanitary Barriers

For over 50 food and agricultural products, Ecuador requires prior import authorization from the Ministry
of Agriculture, Livestock and Fisheries (MAGAP) or the Ministry of Public Health (MoPH), or both,
depending on the particular product. The MAGAP authorization itself requires several internal approvals.
Ecuador’s prior authorization system can be vulnerable to lobbying by domestic producers seeking to block
or impede imports, and raises questions regarding the underlying scientific justification and consistency
with World Organization for Animal Health and Codex Alimentarius Commission standards.

In addition to prior authorization, COMEX Resolution 019 mandates that AGROCALIDAD, Ecuador’s
national sanitary and phytosanitary authority, require an SPS certificate for imported agricultural products,
including low-risk products of animal origin.

AGROCALIDAD banned all U.S. origin poultry products on April 16, 2015, due to highly pathogenic
avian influenza. AGROCALIDAD then lifted the ban in part by allowing the import of U.S. live poultry
and day-old chicks. USDA is currently working with AGROCALIDAD to finalize the protocol
requirements to resume imports of U.S. fresh and frozen poultry meat.

AGROCALIDAD issued Resolution 217 on September 9, 2016, which requires plant registration of foreign
facilities that export animals or animal products to Ecuador. Although Ecuador notified this resolution to
other trade partners through the WTO notification process, the country did not allow any time for comments.
This resolution is problematic for U.S. exporters, as much of the information required by AGROCALIDAD
will be difficult to gather. In all cases, AGROCALIDAD reserves the right to request a site inspection with
costs covered by the party interested in exporting to Ecuador.

IMPORT POLICIES

Tariff and nontariff barriers remain a challenge, but there are signs of gradual improvement. Ecuador has
imposed a broad range of tariff and nontariff restrictions on trade in goods, services, and investment, as
well as weakening protection of intellectual property rights. This trend began several years ago, but
accelerated in 2014 and 2015 as Ecuador’s balance of payments circumstances worsened and economic
growth declined. These measures, such as tariff surcharges implemented in March 2015 that remain in
effect, contributed to sharply reduced U.S. exports to Ecuador in 2015 and 2016. The measures also created
uncertainty in Ecuador’s market, which can discourage investment, penalize Ecuadorian workers and
businesses, and limit consumer choices of competitively priced, high quality goods and services. However,
Ecuador eliminated quotas beginning January 1, 2017, that improved the competitive environment for
automobiles and cell phones.

As part of its import policies, Ecuadorian officials sought commitments from companies to increase local
production and decrease imports. According to Ecuador’s Coordinating Minister for Production,
Employment, and Competitiveness, over 900 companies signed import substitution agreements with the
government in 2014 and 2015. Some of these companies complained that the government coerced them
into the agreements by citing Resolution 116 technical requirements as a reason to block their imports until
they agreed to sign. According to local importers, this policy of coercing companies into signing import

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substitution agreements with the government was discontinued beginning in mid-2015, but many of the
agreements remain in effect.

The United States has objected to Ecuador’s restrictions on trade in a variety of fora – bilaterally, through
various WTO committees, and in coordination with other countries. The United States will continue to
press Ecuador to reverse these policies in light of its international commitments.

Tariffs

Since 2015, Ecuador has levied tariff surcharges on imported products. COMEX Resolution 011-2015
placed tariff surcharges of 5 percent to 45 percent on about 3,000 tariff lines beginning in March 2015. In
June 2015, Ecuador informed other WTO Members that it would phase out all tariff surcharges by June
2016. In April 2016, Ecuador postponed the elimination of the surcharges until June 2017. Ecuador began
easing the surcharges in January 2016. Since October 2016, surcharges have been applied on about 2,200
products at either 35 percent or 15 percent.

When Ecuador joined the WTO in January 1996, it bound most of its tariff rates at 30 percent ad valorem
or less, except for agricultural products covered by the Andean Price Band System (APBS). Ecuador agreed
to phase out its participation in the APBS when it joined the WTO; however, to date, Ecuador has taken no
steps to phase out use of the APBS. The most recent WTO Trade Policy Review (TPR) of Ecuador in 2011
reported that Ecuador’s tariff structure had become more complex “with the increase in the number of ad
valorem rates and the adoption of compound duties.” The TPR indicated that Ecuador’s applied simple
average most favored nation (MFN) tariff rate was 9.3 percent in 2011. With the additional trade
restrictions imposed since 2011, the actual average applied MFN tariff rate for agricultural products was
18.3 percent in 2015.

Specific tariff changes by sector in recent years include those described below:

Consumer goods

COMEX Resolution 023, issued July 17, 2014, created a $42 tariff on packages shipped via international
courier. Consumers may receive no more than five packages per year, and each package must weigh less
than four kilograms and be valued at less than $400, with a total value for all five packages not to exceed
$1,200. COMEX Resolution 033, issued September 19, 2014, modified Resolution 023 to provide a waiver
of the $42 tariff for packages sent by Ecuadorian residents abroad, up to a limit of 12 packages or $2,400
dollars.

Agricultural products

Ecuador’s continued use of the APBS affects many U.S. agricultural exports. Because world prices for
agricultural commodities were comparably low in 2016, U.S. exports such as wheat, barley, malt barley,
soybeans, and soybean meal faced significantly higher total duties than in previous years. These duties
consist of an ad valorem tariff plus a variable levy or surcharge, which increases as world prices decrease.
For example, total duties can be as high as 45 percent for pork and 86 percent for chicken parts. The APBS
has had a particularly adverse impact on soybean meal. Although Ecuador granted a renewable tariff
exemption period for imports of soybean meal, this preference expired on December 31, 2016. As a result,
many importers in the domestic livestock and aquaculture industries suspended purchases of soybean meal
of U.S. origin because of uncertainty regarding tariff levels in 2017. South American trading partners will
likely increase market share in 2017 because they enjoy preferential market access with Ecuador.

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Nontariff Measures

Importers must register with Ecuador’s National Customs Service to obtain a registration number for all
products.

Agriculture

COMEX Resolution 102 and MAGAP Resolution 299-A (enacted in June 2013) impose a mandatory,
cumbersome process for allocating import licenses for cheese, butter, milk, potatoes (including French
fries), beef, pork, chicken, turkey, beans, sorghum, and corn. Resolution 299-A specifies that import
licenses are not granted automatically, but rather are issued based on the level of domestic production
relative to demand. Resolution 299-A requires importers to present to MAGAP their yearly import
requirements for review. The review results are shared with domestic producers. Resolution 299-A
prohibits imports during periods of high domestic production. Andean Community members are excluded
from this requirement.

For a number of agricultural products, MAGAP established consultative committees. These committees
are composed of private sector representatives and government officials. Originally conceived as an
advisory body for recommending production and agricultural development policies, these committees now
seek to block imports to encourage domestic production.

Automotive

The Ministry of Foreign Trade announced on September 30, 2016, the elimination of quotas for automobile
imports beginning on January 1, 2017. This action removed a major restriction on U.S. automobile exports
to Ecuador.

MIPRO Resolution 14-453 provided that as of October 6, 2015, Ecuador would no longer accept U.S.
Federal Motor Vehicle Safety Standards (FMVSS) and would require all automobiles sold in Ecuador to
meet the safety standards established by the UN Economic Commission for Europe. U.S. companies
reported that this regulation could impact $150 million of U.S. car and truck exports to Ecuador annually.
Following substantial engagement by the U.S. Government, the Ministry of Industries and Productivity
(MIPRO) issued Resolution 16-122 on April 6, 2016, which reversed Resolution 14-453 by allowing for
continued imports and sale of automobiles manufactured to FMVSS. On October 5, 2016, MIPRO issued
Resolution 16-410 accepting the Blue Ribbon Letter, issued by the U.S. Department of Transportation’s
National Highway Transportation Safety Administration, as proof of compliance with FMVSS for
automobiles manufactured in the United States.

Cellular Telephones

Quotas on imports of cellular telephones that had been in effect since 2012 were eliminated effective in
January 2017. The elimination of the quotas was announced in bulletin number 38-2017 published by
Ecuador’s customs authority.

Consumer Goods

Ecuador applies a special consumption tax (ICE) on a number of products, including alcohol, perfumes,
video games, firearms, airplanes, helicopters, boats, and cable television service. Many of the products to
which the ICE applies are imported, while many products that are domestically produced are excluded. In
October 2016, reportedly in order to facilitate approval by the EU of Ecuador’s accession to the Multiparty

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Trade Agreement, Ecuador modified the calculation of the ICE on alcoholic beverages to the equalize the
treatment of imported and domestic beverages.

Footwear

Ecuadorian law (INEN 013) requires U.S. footwear companies to make a special label on every pair of
shoes imported to Ecuador, including content information and an Ecuadorian tax ID number. U.S. footwear
companies need to make special production runs, specifically for Ecuador, to attach labels to the shoe upper
during manufacture or attach a label after manufacture in a labor intensive manner. These requirements far
exceed typical local language labeling requirements.

GOVERNMENT PROCUREMENT

Ecuador is not a signatory to the WTO Agreement on Government Procurement, but is subject to
government procurement disciplines in its trade agreement with the EU.

Bidding on government procurement can be cumbersome and nontransparent. The lack of transparency
poses a risk that procuring entities will manipulate the process to their advantage. For example, public
enterprises have broad flexibility to make procurements with reduced legal oversight. Ecuador’s Public
Procurement Law establishes exceptions for procurements made according to special rules established by
presidential decrees, for exploration and exploitation of hydrocarbons, for emergency situations, and for
national security contracts. Article 34 of the Public Procurement Law allows public enterprises to follow
special procurement rules, provided the National Public Procurement Service issues an open ended
authorization for purchases considered within “the nature of the enterprise.”

Ecuador also requires that preferential treatment be given to locally produced goods, especially those
produced by the constitutionally created “social and solidarity economy,” as well as micro and small
enterprises.

Foreign bidders are required to register and submit bids for government procurement through an online
system (http://www.compraspublicas.gob.ec). Foreign bidders must have a local legal representative in
order to participate in government procurement.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Ecuador was moved to the Special 301 Watch List from the Priority Watch List in 2016 in recognition of
the passage in August 2015 of an amendment that reinstated some criminal procedures and penalties for
intellectual property crimes.

Enforcement of IPR against widespread counterfeiting and piracy remains weak (including in marketplaces
such as La Bahia Market in Guayaquil), and with respect to the pharmaceutical and agricultural chemical
industries, Ecuador does not appear to adequately protect against the unfair commercial use or the
unauthorized disclosure of undisclosed test or other data generated to obtain marketing approval for
pharmaceutical and agricultural chemical products. The Code of the Social Economy of Knowledge,
Creativity, and Innovation, legislation covering wide ranging intellectual property matters, entered into
force on December 9, 2016. U.S. stakeholders have expressed concerns that the legislation could negatively
affect intellectual property protections and foreign investment in Ecuador.

On August 16, 2016, the Ecuadorian Institute of Intellectual Property issued Resolution 001-2016-CD-
IEPI, which lowered exorbitant fees for registration and maintenance of patents, bringing them back into
line with international practice.

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On August 22, 2016, Ecuador issued a Presidential Decree (1159) to amend Presidential Decree 522, which
affects the labeling of off-patent medicines. Some stakeholders continue to express concerns that the
Decree may prejudice the legitimate interests of affected trademark holders. Also during 2016, Ecuador
reevaluated and suspended several compulsory licenses of pharmaceutical related patents that it had issued
in previous years.

The United States will continue to engage Ecuador on these issues in 2017, including through the Special
301 process.

SERVICES BARRIERS

Credit Bureaus

In September 2014, Ecuador enacted the Monetary and Financial Code, which regulates the financial,
insurance, and capital markets. Article 357 of the law established the National Data Registry as the only
depository of credit information to be allowed in Ecuador. No date has been established for when Article
357 will take effect. Once the government determines the National Data Registry is operational, the law as
written would force U.S. and other foreign credit agencies to close upon 90 days’ notice from the
government. At least one U.S. bureau remained operational as of December 2016.

Telecommunications

On February 10, 2015, the National Assembly passed a law that requires telecommunications companies
with at least a 30 percent market share to pay 0.5 percent of their revenue to the government. The law
increases the required payments on a progressive basis up to nine percent of revenue for companies with
market share of 75 percent or more. The requirement applies to mobile telephone, subscription television,
Internet, and fixed-line telephone service providers. Corporación Nacional de Telecomunicaciones (CNT),
owned by the government of Ecuador, is the dominant provider of fixed telecommunications services and
a major supplier of subscription television services. The government of Ecuador maintains policies that
favor CNT over other competitors, including exemptions from paying certain license fees and taxes.

INVESTMENT BARRIERS

Ecuador’s investment climate remains marked by uncertainty, owing to the government’s unpredictable
and frequently restrictive economic policies.

Regulations and laws since 2007 limit private sector participation in sectors deemed “strategic,” most
notably in the extractive industries. In 2010, the Ecuadorian government enacted a hydrocarbons law that
required all contracts in the extractive industries to be in the form of service, or “for fee” contracts, rather
than production sharing agreements. Beginning in 2014, the government signed petroleum services
contracts that allowed some flexibility in the requirement that all contracts be “for fee.” Since 2014, the
Ecuadorian government has attempted to encourage private investment in mining through changes to tax
regulations affecting mining operations.

Ecuador withdrew from the Convention on the Settlement of Investment Disputes (ICSID Convention),
effective January 7, 2010.

Ecuador’s National Assembly approved a public-private partnership law on December 15, 2015, intended
to attract investment. The law allows increased private participation in some sectors and offers incentives,
including the reduction of income tax, value added tax, and capital exit tax for investors in certain projects.

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We are aware of no U.S. firms that have signed a public-private partnership agreement with the Ecuadorian
government since passage of the law.

OTHER BARRIERS

Many U.S. firms and citizens have expressed concerns that corruption among government officials can be
a constraint to successful investment in Ecuador.

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EGYPT
TRADE SUMMARY

The U.S. goods trade surplus with Egypt was $2.0 billion in 2016, a 39.9 percent decrease ($1.3 billion)
over 2015. U.S. goods exports to Egypt were $3.5 billion, down 26.2 percent ($1.2 billion) from the
previous year. Corresponding U.S. imports from Egypt were $1.5 billion, up 6.2 percent. Egypt was the
United States' 49th largest goods export market in 2016.

Sales of services in Egypt by majority U.S.-owned affiliates were $1.2 billion in 2014 (latest data available),
while sales of services in the United States by majority Egypt-owned firms were $2 million.

U.S. foreign direct investment (FDI) in Egypt (stock) was $23.3 billion in 2015 (latest data available), a 3.4
percent decrease from 2014.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Vehicles

U.S. vehicle and automobile parts exports face significant barriers in Egypt, and U.S. exports declined by
30.6 percent in 2016. Since June 2014, Egypt has applied EU-based emissions and safety regulatory
standards for vehicles and replacement parts. This has made it difficult to export U.S. standard vehicles
and parts to the market, in part because it is impossible to substitute parts built in conformity with EU
standards to service vehicles built to U.S. regulatory requirements. Further, Egypt is only enforcing these
standards for imports. Another restrictive element of Egypt’s law prohibits the importation of used vehicles
for commercial purposes.

The United States is seeking to address the decline in U.S. exports by encouraging Egypt also to accept
U.S.-based emissions and safety regulatory standards for vehicles. After persistent engagement by the U.S.
Government, Egypt finally agreed to accept U.S.-based emissions and safety regulatory standards for
vehicles in 2016. Egypt has not yet implemented this change, but the U.S. Government will continue to
press Egypt to do so in 2017.

In May 2014, the Egyptian Ministry of Trade and Industry issued a decree banning the importation of
motorcycles and three wheel vehicles except for tricycles and chassis. The decree bans the importation of
completely built units, yet allows the importation of semi-knocked down motorcycle chassis and engines.
This ban remains in place.

Poultry Parts and Poultry Offal

Since 2003, Egypt has maintained a ban on poultry parts and poultry offal from all origins, only permitting
imports of whole, frozen birds. Although Egypt cites halal slaughter concerns as the reason for the ban,
Egypt’s General Organization for Veterinary Services (GOVS) inspected and approved 22 U.S. poultry
establishments for export to Egypt in September 2013, certifying that U.S. slaughtering processes and food
safety measures are in accordance with Islamic halal practices.

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Foreign Manufacturers Registration

Decree 43/2016, in effect since March 16, 2016, requires foreign entities that export finished consumer
products to Egypt, e.g., dairy products, furniture, fruits, textiles, confectioneries, and home appliances, to
register with Egypt’s General Organization for Exports and Imports Control (GOEIC). Goods from
nonregistered entities are not cleared through customs. The burden of securing access to the list adds costs
and uncertainty to the export process, and over time, may discourage exports to Egypt. In June and
November 2016, the United States and other WTO Members raised these concerns with Egypt during
meetings of the WTO Technical Barriers to Trade (TBT) Committee.

Sanitary and Phytosanitary Barriers

In recent years the Egyptian government has made limited progress in taking a more scientific approach to
sanitary and phytosanitary measures. However, importers of U.S. agricultural commodities continue to
face unwarranted barriers.

Agricultural Biotechnology

In March 2012, Egypt’s Ministry of Agriculture and Land Reclamation issued a decree suspending the
cultivation of corn seeds developed through agricultural biotechnology. This suspension followed media
reports critical of agricultural biotechnology products.

Feather Meal

The Ministry of Agriculture and Land Reclamation’s Decree 448 (March 19, 2012) bans the importation of
heat-treated feather meal. Egypt cites concerns about avian influenza and nutritional value as a justification
for the ban. Egypt’s ban on heat-treated feather meal does not appear to be consistent with OIE guidelines
on avian influenza.

Seed Potatoes

The United States remains unable to export seed potatoes to Egypt because it has not granted import permits
for required field trials to address sanitary concerns.

IMPORT POLICIES

Tariffs

On January 26, 2016, Egypt issued Presidential Decree 26, which increased already high tariffs on
approximately 100 “non-essential” items, including sunglasses, nuts, cut flowers, fireworks, grapes,
strawberries, apples, pineapples, video games, chewing gum, watches, and seafood (including shrimp and
caviar). On December 1, 2016, Egypt issued a second Presidential Decree, further increasing tariffs from
40 to 60 percent on certain luxury items, some of which were included in the earlier decree.

Egypt also has maintained high tariffs on a number of other products. Egypt’s tariff on passenger cars with
engines of less than 1,600 cubic centimeters (cc) is 40 percent, and the tariff on cars with engines of more
than 1,600 cc is 135 percent. Tariffs on a number of processed and high-value food products, including
poultry meat, range from 20 percent to 30 percent. There is a 300 percent tariff on alcoholic beverages for
use in the tourism sector, including for hotels, plus a 40 percent sales tax. The tariff on alcoholic beverages
for use outside the tourism sector ranges from 1,200 percent on beer, 1,800 percent on wine, and 3,000
percent on sparkling wine and spirits, effectively ensuring that these beverages are comprised of foreign

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unrefined inputs that are reconstituted and bottled in Egypt. Foreign movies are subject to tariffs amounting
to 46 percent. They are also subject to sales taxes and box office taxes higher than those for domestic films.

Customs Procedures

Egypt has not implemented modern information technology systems, making it difficult for the Customs
Authority efficiently to target suspect shipments for inspection. The delays affect the Customs Authority’s
capability to process manifests and entry documentation, including for customs valuation. The lack of
automated manifest collection and internal coordination, in addition to inefficient inspection procedures,
has resulted in significant customs delays. Also, Egypt’s practice of consularization, which requires that
exporters secure a stamp from Egyptian consulates on all documents for goods exported to Egypt – at a cost
of $100 to $150 per document – adds significant costs in money and time to such exports. To date, Egypt
has not ratified the WTO Trade Facilitation Agreement, which will expedite the movement of goods across
borders and improve customs cooperation.

Import Bans and Barriers

The National Nutrition Institute or the Drug Planning and Policy Center of the Ministry of Health and
Population (MoHP) must register and approve all nutritional supplements, specialty foods, and dietary
foods. Importers must apply for a license to import specialty food products and renew the license every
one to five years, depending on the product, at a cost of approximately $1,000 per renewal. Finally, while
there is no law that prohibits the importation of nutritional supplements in finished pill form, import licenses
for these products are not provided.

The MoHP must approve the importation of new, used, and refurbished medical equipment and supplies.
The MoHP approval process consists of a number of steps, which some importers have found burdensome.
Importers must submit a form requesting the MoHP’s approval to import, provide a safety certificate issued
by health authorities in the country of origin, and submit a certificate of approval from the U.S. Food and
Drug Administration or the European Bureau of Standards. The importer must also present an original
certificate from the manufacturer indicating the production year of the equipment and, if applicable,
certifying that the equipment is new. All medical equipment must be tested in the country of origin and
proven safe. The importer must prove it has a service center to provide after-sales support for the imported
medical equipment, including spare parts and technical maintenance.

GOVERNMENT PROCUREMENT

A 1998 law regulating government procurement requires procuring entities to consider technical factors,
along with price, in awarding contracts. A preference is granted to Egyptian companies whose bids are
within 15 percent of the price of other bids. Also, in the 2004 Small and Medium Sized Enterprises (SMEs)
Development Law, Egyptian SMEs were given the right to supply 10 percent of the goods and services in
every government procurement contract. Moreover, the Prime Minister retains the authority to determine
the terms, conditions, and rules for procurement by specific entities and may grant authorities the right to
use sole-source contracting for a project. Egypt is neither a signatory to, nor an observer of, the WTO
Agreement on Government Procurement.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Egypt remained on the Watch List in the 2016 Special 301 Report. The United States applauds Egypt’s
2016 public awareness campaign emphasizing the importance of trademarks. However, the United States
remains concerned about the lack of enforcement of intellectual property rights, particularly with respect to
the usage of pirated and counterfeit goods, including software, music, unlicensed satellite TV broadcasts,

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and videos, which represent barriers to U.S. exports and investment. Further, the lack of clarity, speed, and
effectiveness in processing trademark and patent applications remain obstacles for growth. The U.S.
Government continues to recommend that Egypt provide customs officials with ex officio authority to seize
counterfeit and pirated goods at the border and establish a specialized body responsible for IPR protection.

SERVICES BARRIERS

Egypt restricts foreign equity in construction and transport services to 49 percent. Egypt also limits the
employment of non-nationals to 10 percent of an enterprise’s general workforce, although the Ministry of
Manpower and Migration can waive this limitation. In computer related industries, Egypt requires that 60
percent of senior executives be Egyptian citizens within three years of the startup date of the venture. A
decree published in September 2015 obliges freight forwarding companies to be at minimum 51 percent
Egyptian-owned to be eligible for a license from the Civil Aviation Authority (CAA) to operate in Egyptian
airports. Licenses are issued every two years. The terms of this decree affects approximately 20 foreign
companies, including several American firms, providing over 80 percent of the airfreight services in Egypt.
Despite this decree, however, at least one 100 percent-owned foreign company had its license renewed in
2016 without problem. The United States will continue to engage Egypt on these issues.

Banking

Foreign banks are able to buy shares in existing banks, but are not able to secure a license to establish a
new bank in Egypt, as new commercial banking licenses have not been issued since 1979. Three state-
owned banks (Banque Misr, Banque du Caire, and the National Bank of Egypt) control approximately 40
percent of the banking sector’s total assets. Egyptian banks have since revived inter-bank transfers, and
withdraw and deposit caps for foreign currency have been lifted for retail and corporate clients. However,
importers of “non-essential goods” are still bound by the $50,000 monthly limit for deposits and a $30,000
daily limit for withdrawals.

Telecommunications

The state-owned telephone company, Telecom Egypt, lost its legal monopoly on the local, long-distance,
and international telecommunication sectors in 2005. Nevertheless, Telecom Egypt continues to hold a de
facto monopoly in the fixed line sector, primarily because the National Telecommunications Regulatory
Authority (NTRA) has not approved additional licenses to compete in these sectors. The lack of
competition among Internet service and fixed landline providers has contributed to high prices, low Internet
speeds, and poor service quality. There is competition in mobile networks at the local level.

NTRA has been working on a unified license regime that would allow a company to offer both fixed line
and mobile networks, but it has not been finalized. Adoption of a unified license regime would allow
Telecom Egypt, currently operating in the fixed line market, to enter the mobile market and the three mobile
providers to enter the fixed market. In November 2016, Etisalat, Orange, and Vodafone signed license
deals with the NTRA to launch 4G services, alongside Telecom Egypt.

Courier and Express Delivery Services

The Egyptian National Post Organization (ENPO) must grant special authorization to foreign-owned
private courier and express delivery service suppliers seeking to operate in Egypt. In addition, although
express delivery services constitute a separate, for-profit, premium delivery market, ENPO requires private
express operators to pay a postal agency fee of 10 percent of annual revenue on shipments of less than 20
kilograms. ENPO imposes an additional fee on private couriers and express delivery services of £E5
($0.30) on all shipments under 5 kilograms.

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INVESTMENT BARRIERS

Labor rules require that companies employ at least 90 percent Egyptian citizens (75 percent in Free Zones)
and foreigners are not allowed to operate sole proprietorships or partnerships. Egypt’s trade regulations
allow foreigners to act as commercial agents with respect to the import of goods for trading purposes, but
prohibit foreigners from acting as importers themselves. A foreign company wishing to import for trading
purposes must do so through an Egyptian importer. U.S. investors have complained that Egyptian courts
are not consistent in their approach to the recognition of foreign arbitral awards. In their view, enforcing
arbitration awards in Egypt can in some cases require re-litigating the dispute in court. For foreign court
judgments, only a few foreign states’ judgments are enforceable in Egypt. There is also a perception that,
in some cases, the domestic judicial system is subject to political influence.

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EL SALVADOR
TRADE SUMMARY

The U.S. goods trade surplus with El Salvador was $466 million in 2016, a 34.3 percent decrease ($243
million) over 2015. U.S. goods exports to El Salvador were $3.0 billion, down 8.6 percent ($278 million)
from the previous year. Corresponding U.S. imports from El Salvador were $2.5 billion, down 1.4 percent.
El Salvador was the United States' 51st largest goods export market in 2016.

U.S. exports of services to El Salvador were an estimated $1.0 billion in 2015 (latest data available) and
U.S. imports were $770 million.

U.S. foreign direct investment (FDI) in El Salvador (stock) was $2.6 billion in 2015 (latest data available),
a 8.8 percent decrease from 2014.

Free Trade Agreement

The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR or the
Agreement) entered into force for the United States, El Salvador, Guatemala, Honduras, and Nicaragua in
2006, for the Dominican Republic in 2007, and for Costa Rica in 2009. The CAFTA-DR significantly
liberalizes trade in goods and services, as well as includes important disciplines relating to customs
administration and trade facilitation, technical barriers to trade, government procurement, investment,
telecommunications, electronic commerce, intellectual property rights, transparency, labor, and
environment.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Since 2013, U.S. companies have been disadvantaged by onerous labeling regulations issued by the
Ministry of Health. El Salvador requires a “Certificate of Free Sale” to register food products, cosmetics,
and hygienic products in El Salvador. As no such equivalent certificate exists in the United States for these
products, companies located in El Salvador seeking to import and sell U.S. products at times have difficulty
complying with this requirement. USDA has negotiated with the Ministry of Health the acceptance of the
Food Safety Inspection Service (FSIS) 9060-5 certificate for meat and meat products in lieu of the
Certificate of Free Sale. However, the Ministry of Agriculture (MAG) requires an original FSIS 9060-5
certificate for U.S. meat and meat products. USDA is currently in discussions with MAG to accept a
notarized copy of the original and allow importers to use the original certificate to meet Ministry of Health
requirements.

The Ministry of Health has drafted regulations without adhering to its domestic procedures for consultation
and notification, and then attempted to enforce such regulations via unofficial notifications. Labeling
requirements that are not contemplated by laws have been inserted into these implementing regulations.

In June 2015, El Salvador issued the implementing regulation for the Act for the Promotion, Protection and
Support of Breast Feeding, which defines requirements for sanitary registration, restricts marketing and
advertising, and sets out labeling requirements for breast milk substitutes. This measure was published and
entered into force also during June 2015, without notification to the WTO, and still lacks certainty as to
what information must appear on the label. The United States is monitoring the implementation of the

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measure and has requested El Salvador notify it to the WTO to allow WTO Members a comment period
and reasonable interval for implementation.

Internal Taxes on Distilled Spirits

El Salvador, under its general alcoholic beverage law, currently assesses a specific excise tax on distilled
spirits that is applied on a per-liter of alcohol basis, with four specific rates (currently $0.0325, $0.5, $0.9
and $0.16). The lowest rate applies only to Aguardientes, a locally bottled spirit made from cane sugar.
Whiskey, which is exclusively imported, is assessed at the highest rate. Arbitrary breakpoints based on
type of distilled spirit or tariff classification appear to result in a significantly lower tax rate on spirits
produced locally.

Sanitary and Phytosanitary Barriers

In November 2015, the MAG issued a requirement for animal product imports that requires MAG personnel
to inspect and certify, every 3 years, any exporting facility. Under CAFTA-DR, El Salvador grants
equivalence to the U.S. beef, pork, and poultry inspection systems. Therefore, the new requirement only
applies to U.S. animal origin products not covered by the equivalence agreement. The MAG has extended
exporters’ compliance deadline for this measure to November 17, 2017. Other products, such as animal
feed and pet food additives/probiotics, also are affected by this requirement. USDA is in discussion with
the MAG to allow U.S. products to be imported based on recognition of the U.S. inspection rather than a
plant-by-plant inspection by MAG.

The MAG requires on-site inspections in the United States by Salvadoran officials for U.S. seafood imports
into El Salvador. A Memorandum of Understanding is currently under review by MAG to recognize U.S.
National Oceanic and Atmospheric Administration (NOAA) inspections as sufficient for meeting MAG’s
requirement.

Food product testing requirements often are redundant and increase the cost of introducing a product to the
Salvadoran market. El Salvador does not distinguish between low- and high-risk products. Therefore,
extensive laboratory tests are mandatory for all food products, even for those products that would be
considered low-risk in other markets. This requirement applies when importing samples (products that
companies may or may not actually end up importing). To register product samples, the Ministry of Health
requires large quantities of the product for testing, including samples of different flavors of the same
product.

IMPORT POLICIES

Tariffs

As a member of the Central American Common Market, El Salvador applies a harmonized external tariff
on most items at a maximum of 15 percent, with some exceptions. However, under the CAFTA-DR, as of
January 1, 2015, 100 percent of originating U.S. consumer and industrial goods enter El Salvador duty free.
Nearly all textile and apparel goods that meet the Agreement’s rules of origin also now enter El Salvador
duty free and quota free, creating economic opportunities for U.S. and regional fiber, yarn, fabric, and
apparel manufacturing companies.

Eighty-four percent of U.S. agricultural product exports by product line are eligible for duty-free treatment
in El Salvador under the CAFTA-DR as of 2015. El Salvador will eliminate its remaining tariffs on nearly
all agricultural products by 2020, on rice and chicken leg quarters by 2023, and on dairy products by 2025.
For certain agricultural products, tariff-rate quotas (TRQs) permit duty-free access for specified quantities

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during the tariff phase-out period, with the duty-free amount expanding during that period. El Salvador
will liberalize trade in yellow corn through a 5 percent continual expansion of the initial 350,000 metric ton
TRQ for 15 years, after which unlimited quantities will be permitted.

Nontariff Measures

Under the CAFTA-DR, all CAFTA-DR countries, including El Salvador, committed to improve
transparency and efficiency in administering customs procedures. The CAFTA-DR countries also
committed to ensuring greater procedural certainty and fairness in the administration of these procedures,
and agreed to share information to combat illegal transshipment of goods. In 2013, Salvadoran Customs
implemented nonintrusive inspections with x-rays at border crossings. These inspections have resulted in
detection of over 2,000 cases of anomalies, such as trafficking of drugs or false declarations of goods. At
the same time, while designed to facilitate cross-border movements, the procedures have resulted in
considerable delays that cause losses to exporters and importers. Customs also has increased incidence of
penalties for differences between a shipment’s weight and that presented on the accompanying paperwork,
without taking account of shipping losses or providing an opportunity to amend the documentation. The
private and public sector Inter-union Commission for Trade Facilitation (Cifacil) has been promoting the
implementation of measures to streamline trade, but has not made progress despite years of engagement
with the government. The Central American customs integration process is advancing between El Salvador
and Guatemala, but the process is still pending with other countries in the region.

In October 2015, El Salvador’s Legislative Assembly approved a new amendment to the Customs
Simplification Law, including a required $18 per shipment processing fee for incoming packages and cargo.
Although the private sector submitted comments and met with Salvadoran Customs to discuss the
amendment before it was implemented, the private sector is concerned that certain language in the amended
Customs Simplification Law might be interpreted as authorizing the Ministry of Finance to impose
additional fees without consulting with the private sector.

GOVERNMENT PROCUREMENT

The CAFTA-DR requires that procuring entities use fair and transparent procurement procedures, including
advance notice of purchases and timely and effective bid review procedures for procurements covered by
the Agreement. In accordance with the CAFTA-DR, U.S. suppliers are permitted to bid on procurements
of most Salvadoran government entities, including key ministries and state-owned enterprises, on the same
basis as Salvadoran suppliers. The anticorruption provisions in the CAFTA-DR apply inter alia to
government procurement.

El Salvador is neither a signatory nor an observer to the WTO Agreement on Government Procurement.

EXPORT SUBSIDIES

El Salvador has eliminated its Export Processing Zones and Marketing Act, an export subsidy program with
permanent tax exemptions based on export performance, and instituted El Salvador’s Free Trade Zone Law,
which grants tax credits based on the number of workers employed and investment levels.

Under the CAFTA-DR, El Salvador may not adopt new duty waivers or expand existing duty waivers that
are conditioned on the fulfillment of a performance requirement (e.g., the export of a given level or
percentage of goods).

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INTELLECTUAL PROPERTY RIGHTS PROTECTION

To implement its CAFTA-DR intellectual property rights (IPR) obligations, El Salvador undertook
legislative reforms providing for stronger IPR protection and enforcement. Despite these efforts, trafficking
in counterfeit products remains high, as does music and video piracy. The United States has also expressed
concern about insufficient enforcement efforts against the unlicensed use of software as well as inadequate
enforcement efforts against cable and satellite signal piracy. The United States remains concerned about
the adequacy of implementation of regulations to protect against the unfair commercial use, as well as
unauthorized disclosure, of test and other data generated for pharmaceutical products and the effectiveness
of the system to address patent issues expeditiously in connection with applications to market
pharmaceutical products is unclear. The United States is also engaging El Salvador to ensure geographical
indication (GI) protections do not negatively impact US stakeholder prior rights and market access. The
United States will continue to monitor El Salvador’s implementation of its IPR obligations under the
CAFTA-DR.

SERVICES BARRIERS

Telecommunications

In 2015, El Salvador eliminated its discriminatory $0.04 per minute tax on international calls. On October
29, 2015, however, the Legislative Assembly passed a special tax of five percent on fixed and mobile
telecommunications services, pay television services, fixed and wireless Internet access services, and the
transfer and import of telecommunications equipment. The proceeds of the tax will be used to fund
government security initiatives. The tax has been challenged in Salvadoran court as unconstitutional
“double taxation,” and is still pending review by the Supreme Court.

INVESTMENT BARRIERS

The Millennium Challenge Corporation is working with the Salvadoran government to systematically
improve the ease and cost of doing business in El Salvador. A new government entity was created to
improve regulations and processes in areas such as public administration, foreign trade and public-private
infrastructure investment. The first reforms package will be presented to executive entities and the
Legislative Assembly in December 2017. As these reforms are pursued, investment in El Salvador
continues to be impeded by non-transparent and duplicative regulations, and by licensing and regulatory
decision-making processes that appear to be inconsistent and contradictory. Such barriers have affected
sectors including energy, mining, and retail sales, while foreign direct investment inflows are low compared
to other countries in the region.

OTHER BARRIERS

Some U.S. firms and citizens have found corruption in government, including in the judiciary, to be a
significant concern and a constraint to successful investment in El Salvador. Administrative and judicial
decision-making appear at times to be inconsistent, nontransparent, and very time consuming. Bureaucratic
requirements have at times reportedly been excessive and unnecessarily complex. A proposed Sovereignty
and Food and Nutrition Security Law may include trade protectionist measures; the National Association
of Private Enterprise (ANEP) is also concerned that this law may impose onerous advertising restrictions
under the guise of protecting public nutritional health.

On November 26, 2015, the Legislative Assembly approved reforms to the Law on Credit History, which,
among other changes, reduced from three years to one the maximum period that credit rating agencies could
retain negative credit information in their databases, once a debt was paid in full. When the original debt

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is less than half of the monthly minimum wage in the trade/services sector (at this time, a debt of $120), the
negative information cannot be retained for more than six months. Credit rating agencies state that the
reforms will increase their costs, raise interest rates, and hinder access to credit. There is also concern in
some quarters that the Office of the Superintendent of the Financial System, which regulates credit rating
agencies and can access their data, is not subject to these maximums. On July 27, 2016, the Legislature
amended the Law to establish objective criteria for the imposition of fines on rating agencies.

The Ministry of Finance requires vendors to pay a two percent charge on credit card purchases made by
their customers, which the Ministry refunds to vendors through offsets on value-added taxes paid by the
vendors on local purchases. However, the Ministry of Finance has not found a way to refund the two
percent charge to those vendors who sell imported goods and make few or no local purchases. The United
States has raised this issue with the government of El Salvador to seek a solution.

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ETHIOPIA
TRADE SUMMARY

The U.S. goods trade surplus with Ethiopia was $591 million in 2016, a 52.5 percent decrease ($654
million) over 2015. U.S. goods exports to Ethiopia were $827 million, down 46.8 percent ($728 million)
from the previous year. Corresponding U.S. imports from Ethiopia were $236 million, down 23.9 percent.
Ethiopia was the United States' 82nd largest goods export market in 2016.

SANITARY AND PHYTOSANITARY BARRIERS

In August 2015, the president of Ethiopia signed into law an amendment to the Biosafety Proclamation that
establishes a legal framework to support the cultivation of biotechnology cotton in the country. The
government has subsequently revised the proclamation’s underlying implementing directives to spell out
the specific requirements for introducing genetically engineered (GE) cotton and is in the process of
conducting field trials. Commercialization of GE cotton is expected within the next couple of years.
Meanwhile, the U.S. Foreign Agricultural Service and business contacts have reported that the approval
process for imports of biotechnology grains and oilseeds for food and feed remains overly burdensome.
Imports of processed food products, including soybean and corn oils, and breakfast cereals made from GE
ingredients, are exempt from these requirements. Imports of GE cotton and food aid shipments are also
exempt.

IMPORT POLICIES

Tariffs

According to WTO estimates for 2016, Ethiopia’s average applied tariff rate is 17.4 percent. The
accumulation of foreign exchange reserves by the Central Bank of Ethiopia, and not necessarily the
protection of local industry, appears to be the best explanation for Ethiopia’s tariff levels. However, high
tariffs limit participation in the market and insulate priority sectors of the economy, such as textiles and
leather, from outside competition.

Nontariff Measures

An importer must obtain a letter of credit for the total value of an import transaction and apply for an import
permit before an order can be placed. Even with a letter of credit, however, import permits are not always
granted, and there can be delays for several months before acquiring foreign exchange.

Foreign Exchange Controls

The Central Bank of Ethiopia administers a strict foreign currency control regime, and the local currency
(birr) is not freely convertible. Larger firms, state-owned enterprises, enterprises owned by the ruling party,
and businesses that import goods prioritized by the government’s development plan, and priority
manufacturing export sectors (textiles, leather, and agro-processing) or emergency food importation
generally have not faced major delays in obtaining foreign exchange. However, non-priority sector
investors and less well-connected importers, particularly smaller, new-to-market firms, face delays in
arranging trade-related payments. Since the early October 2016 imposition of the State of Emergency
(SOE) due to political unrest, foreign exchange supplies have become even tighter, and the unreliability of
supply in Ethiopia’s banks hampers the ability of all manufacturers to import and restricts repatriation of
profits.

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GOVERNMENT PROCUREMENT

A high proportion of Ethiopian imports are for government capital investment in infrastructure or for price
stabilization of commodities such as wheat and cooking oil, reflecting the heavy government involvement
in the economy. Tender announcements are usually public, but a number of major procurements, including
for the commodities noted above, have not gone through an open tendering process. Complicated
procedures, delays in decision-making, lack of transparency, and the need for personal connections can
challenge foreign participation in government procurement. U.S. firms have complained about the abrupt
cancellation of procurement awards, and a widespread perception of favoritism toward Chinese competitors
with access to financing packages at terms unavailable on the free market. Another obstacle is the frequent
requirement for potential suppliers to appear in-person to collect solicitation packages, which business
associations complain creates am advantage for state-owned enterprises. U.S. firms have expressed
concerns about the transparency of the tendering process and the failure of procurement agencies to respect
tender terms, suggesting possible corruption. However, progress has been made in this area, and at least
one U.S. firm has successfully utilized the government appeals process to reverse an unfair tendering
decision. U.S. businesses have also reported increasing corruption when clearing goods through customs
and during tendering of infrastructure projects.

Ethiopia is neither a party nor an observer to the WTO Agreement on Government Procurement. However,
Ethiopia has joined the U.S. Trade and Development Agency’s Global Procurement Initiative which
provides support for public officials in emerging economies to better understand the total cost of ownership
for procurement of goods and services related to infrastructure projects, and for establishing procurement
practices and policies that integrate life-cycle cost analysis and best-value determination in a fair and
transparent manner.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Ethiopia was not listed in the 2016 Special 301 Report. While Ethiopia is a member of the World
Intellectual Property Organization and has demonstrated an interest in strengthening its intellectual property
rights (IPR) regime, it has not joined most of the major IPR treaties, including TRIPS. Trademark
infringement and misuse, especially in the hospitality sector, continues to be a growing problem. Given
the lack of enforcement capacity and coordination amongst Ethiopian government agencies, IPR
enforcement is unpredictable. It appears the Ethiopian government only responds to IPR challenges brought
to the attention of Ethiopia’s Competition Commission or through the Federal Court. Further, while the
Ethiopian Intellectual Property Office is responsible for the administration and arbitration of IPR cases in
Ethiopia, it focuses mainly on protecting domestic content and has taken little action to confiscate or impede
the sale of pirated foreign works.

SERVICES BARRIERS

Banking and Financial Services

Ethiopia’s investment code prohibits foreign investment in banking, insurance, and financial services.
Foreign nationals of Ethiopian origin that own bank shares, even if purchased while they were Ethiopian
citizens, have been required to surrender their shares at par value. This is part of a continued effort by the
government of Ethiopia to maintain a closed financial sector. The sector is composed of 16 private
commercial banks and 2 public banks. Financial transactions are predominately in cash. However,
Ethiopia’s Automatic Teller Machine (ATM) network has expanded rapidly and has become accessible to
customers of all banks and credit card holders. In addition, agent-banking services tied to mobile phones
have been introduced by several providers, and more than a million users of agent-banking services have

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been registered. Few international banks maintain representative offices, and all trade financing must go
through an Ethiopian bank. This creates significant challenges for foreign investors with offshore accounts.

Telecommunications

The state-owned Ethio-Telecom maintains a monopoly on wired and wireless telecommunications services.
Ethiopia ranks 169th of 175 countries in intensity of mobile phone, Internet use and information and
communication technologies skills according to the Information and Communication Technology
Development Report issued by the International Telecommunications Union in 2016. The sector is closed
to private investment, although the Value Added Service Directive No. 3/2011 of August 2011 allows
private companies to provide services such as short messaging, payment transaction, entertainment and
information, call center, and virtual Internet services, as well as location based services, through the
government infrastructure. These services grew rapidly in 2016, notably in agent-banking services, bill-
paying services, GPS-based taxi services, mobile medical advice, and employment platforms. However,
with Internet penetration still under 10 percent, most consumers are unable to access these services.

The Ministry of Communication and Information Technology allows companies and organizations whose
operations are Internet-dependent or located in remote areas of the country to use Very Small Aperture
Terminals (VSATs), but it does not allow the general public to use VSATs. Many multinational companies
assert that the current quality of service impedes information transfer and general business operations.

In October 2016, the government of Ethiopia imposed state of emergency laws in response to protests and
political unrest. At that time, Ethio-Telecom initially shut down Internet service to mobile telephones and
blocked access to social media and websites, including U.S. Government, business, scientific, academic,
and news sites. Although the government later restored mobile data services, some sites remain blocked.
Ethiopia scored 83 out of 100 (0=Most Free, 100=Less Free) on the 2016 Freedom House Internet Freedom
Report.

Logistics

Logistics backlogs occur regularly, in part because the customs process remains paper-based, and also
because of structural inefficiencies and alleged corruption at Ethiopian customs. Private sector contacts
reported that logistics costs comprise approximately 22 to 27 percent of the product cost. Equally important,
95 percent of the country’s foreign trade passes through a single port, Djibouti, which is experiencing
incomplete infrastructure projects that delay movement of goods from the container, dry-goods, and oil
terminals to the newly completed railhead. In addition, most goods are transported by trucks; Ethiopia’s
government-owned trucking companies dominate the market, and the overall number of trucks is
insufficient to meet demand. The beginning of operations of the Addis Ababa – Djibouti railway, possibly
in 2017, could partially alleviate transportation delays. Plans to dramatically expand Ethiopia’s rail systems
beyond the Djibouti – Addis Ababa link have been finalized but other rail systems are still under
construction due to a lack of financing. The government announced a new Ethiopian National Logistics
Strategy in 2015 that may open opportunities for private enterprise and provide greater efficiencies overall,
but improvements have not appeared to materialize to date.

INVESTMENT BARRIERS

A number of formal and informal barriers impede foreign investment in Ethiopia. Investment in the
telecommunications services and defense industries is permitted only in partnership with the Ethiopian
government. The banking, insurance, and micro-finance industries are restricted to domestic investors.
Foreign investors also are barred from investing in a wide range of retail and wholesale enterprises (e.g.,

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printing, non-specialized restaurants, and beauty shops). Some government tenders are open to foreign
participation, although the process is not always transparent.

All land in Ethiopia belongs to the state; there is no private land ownership, and land cannot be
collateralized. Land may be leased from local and regional authorities for up to 99 years. However, current
land-lease regulations may place limits on the duration of construction projects; allow for revaluation of
leases at a government-set benchmark rate; place previously owned land (“old possessions”) under
leasehold; or, restrict the transfer of leasehold rights.

OTHER BARRIERS

State of Emergency

Ethiopia has experienced sporadic but often violent political unrest and protests since October 2015 and, in
July 2016, the situation deteriorated further. According to the Development Bank of Ethiopia (DBE), 68
large-scale investments, plus an unknown number of smaller investments, were vandalized. Reportedly, in
response to demands for protection from the business community, the government of Ethiopia enacted a
state of emergency (SOE) effective October 8, 2016, to re-establish law and order. The SOE extended
extraordinary powers to the army and police, and implementation provisions, among other things, for
authorized detention without a warrant; limiting mobile data and blocking access to a wide range of Internet
sites including social media, news outlets, YouTube, and Skype; and prohibiting public gatherings and
demonstrations. The SOE, and the unrest that preceded it, are expected to slow economic growth due to
factors such as capital flight and reduced foreign investment, tourism, exports, and business confidence.
The restrictions on Internet access, although eased weeks after the imposing the SOE, impacted businesses
and demonstrated that access could be cut at any time, for undetermined periods and without notice.

Parastatal and Party-affiliated Companies

Ethiopian and foreign investors alike complain about patronage networks and preferences shown to
businesses owned by the government. These businesses receive preferential access to bank credit, foreign
exchange, land, and procurement contracts, as well as favorable import duties.

Judiciary

Companies that operate businesses in Ethiopia assert that the judicial system remains inexperienced and
inadequately staffed, particularly with respect to commercial disputes. While property and contractual
rights are recognized, and there are commercial and bankruptcy laws, judges often lack understanding of
commercial matters and the scheduling of cases often face extended delays. Contract enforcement remains
weak, though Ethiopian courts will at times reject spurious litigation aimed at contesting legitimate tenders.
Ethiopia has not yet ratified key international arbitration agreements such as the New York Convention,
although the government stated that the ratification is under consideration. Ethiopia is in the process of
reforming the country’s Commercial Code to bring it in line with international best practices. The draft
legislation appears to address many concerns raised by the business community, including by proposing to
introduce a commercial court under the regular court system to improve resolution of commercial disputes.

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EUROPEAN UNION
TRADE SUMMARY AND OVERVIEW

The U.S. goods trade deficit with European Union was $146.3 billion in 2016, a 5.9 percent decrease ($9.2
billion) over 2015. U.S. goods exports to European Union were $270.3 billion, down 0.6 percent ($270.3
billion) from the previous year. Corresponding U.S. imports from European Union were $416.7 billion,
down 2.5 percent.

U.S. exports of services to European Union were an estimated $226.8 billion in 2015 (latest data available)
and U.S. imports were $172.8 billion. Sales of services in European Union by majority U.S.-owned
affiliates were $651.1 billion in 2014 (latest data available), while sales of services in the United States by
majority European Union-owned firms were $479.9 billion.

U.S. foreign direct investment in European Union (stock) was $2.7 trillion in 2015 (latest data available), a
6.5 percent decrease from 2014. U.S. direct investment in European Union is led by nonbank holding
companies, manufacturing, and finance/insurance.

The United States and the 28 Member States of the EU share the largest economic relationship in the world.
Trade and investment flows between the United States and the EU are a key pillar of prosperity on both
sides of the Atlantic. Transatlantic trade flows (goods and services trade plus earnings and payments on
investment) averaged $4.7 billion each day of 2015, and the total stock of transatlantic investment was $4.5
trillion in 2015.

U.S. exporters and investors nonetheless face persistent barriers to entering, maintaining, or expanding their
presence in certain sectors of the EU market. Some of the most significant barriers, which have endured
despite repeated efforts at resolution through bilateral consultations or WTO dispute settlement, have been
highlighted in this report for many years. Many are highlighted again in this year’s report.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

European Standardization and Conformity Assessment Procedures

The EU’s approach to standards-related measures, including its conformity assessment framework, and its
efforts to encourage governments around the world to adopt its approach, including European regional
standards, creates a challenging environment for U.S. exporters. In particular, the EU’s approach impedes
market access for products that conform to international standards as opposed to European regional
standards, even though international standards may meet or exceed the objectives set forth in EU legislation.
U.S. producers and exporters thus face additional burdens in accessing the EU market not faced by EU
exporters and producers in accessing the U.S. market.

In 1985, the EU adopted what is known as the “New Approach” to the use of standards for products. 1
Product requirements in a variety of sectors (toys, machinery, medical devices, etc.) are regulated through
New Approach legislation. Under the New Approach, EU legislation sets out the “essential requirements”
that products must meet in order to be placed in the EU market and benefit from free movement within the

1
OJ C 136, 4.6.1985, p. 1.

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EU. Products that conform to European regional standards (called European harmonized standards, or ENs)
under the New Approach are presumed to be in conformity with the essential requirements.2 ENs, however,
can only be developed through the European Standards Organizations (CEN,3 CENELEC,4 and ETSI5) as
directed by the European Commission through a standardization request. These products can bear what is
known as a “CE mark” and can be sold throughout the EU.

While the New Approach does not explicitly prohibit other standards to be used to meet the EU’s essential
requirements, the practical effect of the EU system discourages the use of other standards. Specifically, the
costs and uncertainty associated with not using an EN and attempting to demonstrate that use of an
alternative standard will fulfill essential requirements is often prohibitive. For example, if a manufacturer
chooses not to use an EN, it needs to assemble a technical file through a costly and burdensome process
demonstrating how the product meets the essential requirements. Even if a manufacturer assembles such a
file, there is no certainty that EU or Member State authorities will treat the product as conforming with the
EU’s essential requirements. As a result, U.S. producers often feel compelled to use the relevant EN
developed by the European Standards Organizations for the products they seek to sell on the EU market.
This is the case even if the U.S. products are produced according to relevant international standards
providing similar or higher safety levels.

Moreover, non-EU nationals are generally excluded from the CEN or CENELEC technical committees that
draft the European standards.6 In the limited instances where non-EU nationals are allowed to participate,
they are not allowed to vote. Accordingly, when a U.S. producer uses an EN, it is typically using a standard
that has been developed through a process in which it had no meaningful opportunity to participate. This
is particularly the case for small and medium sized enterprises and other companies that do not have a
European presence. The opportunity for U.S. stakeholders to influence the technical content of EU
directives setting out essential requirements (i.e., technical regulations) is also limited. This is because
when the EU notifies proposed directives containing essential requirements to the WTO, it does not identify
the specific CEN or CENELEC standards for which the presumption of compliance will be given.
Furthermore, the EU only notifies directives after the Commission has transmitted them to the Council and
Parliament and is no longer in a position to revise the directive in light of comments received.
Consequently, U.S. stakeholders often do not have the opportunity to comment on critical technical
elements of proposed technical regulations and conformity assessment procedures contained in EU
directives, nor the standards that may be used to fulfill directives’ essential requirements. In other words,
they are left out from participating in what requirements will be set and the means by which the
requirements will be fulfilled.

Additionally, the United States has serious concerns regarding the EU’s conformity assessment framework,
as set out in Regulation (EC) No 765/2008 and Decision 768/2008. Regulation 765 requires each Member
State to appoint a single national accreditation body and prohibits competition among Member States’
national accreditation bodies. Under the EU system, an accreditation certificate from one Member State
accreditation body suffices throughout the EU. The regulation further specifies that national accreditation
bodies shall operate as public, not-for-profit entities. This regulation effectively bars use of trade-
facilitative international accreditation schemes and precludes U.S. accreditation bodies from offering their
services in the EU with respect to any mandatory third party conformity assessment requirements.

2
Moreover, an EN must be implemented at the national level by an EU Member State, including through the
withdrawal of any conflicting national standard.
3
Committee for Standardization.
4
European Committee for Electrotechnical Standardization.
5
European Telecommunications Standards Institute.
6
For example, CEN/TC 438 is the technical committee for CEN that develops and publishes standards for additive
manufacturing.

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Decision 768 sets out reference provisions to be used in EU Directives establishing conformity assessment
requirements for products falling within the New Approach. Directives applying Decision 768 require that
any mandatory third party conformity assessment be performed by a body that has been designated as a
“Notified Body” and permit only bodies “established under national law” to become Notified Bodies. In
practice, the EU interprets “established under national law” as a requirement that anybody seeking
designation as a Notified Body must be established in the EU and, in particular, in the Member State from
which it is seeking such designation. This raises serious market access concerns for U.S. producers, whose
products may have been tested or certified by conformity assessment bodies located outside the EU, and
denies U.S.-domiciled conformity assessment bodies the opportunity to test and certify products for the EU
market. This lack of reciprocal treatment of U.S. conformity assessment bodies, in contrast to the U.S.
approach to conformity assessment, which provides national treatment to EU bodies, adds increased time
to market, increases costs for manufacturers, and requires U.S. testing and certification bodies to establish
operations in the EU to remain competitive.

The EU also promotes adoption of European regional standards in other markets and often requires the
elimination of non-EU standards as a condition of providing assistance to, or affiliation with, other
countries, which can give EU manufacturers commercial advantages in those markets. The withdrawn
standards can be international standards that U.S. producers use, which may be of equal or superior quality
to the European regional standards that replaced them. U.S. producers thus must choose between the cost
of redesigning or reconfiguring the product or exiting the market.

Civil Nuclear Technologies:

U.S. stakeholders argue that the development of civil nuclear sector technology regulations, standards, or
conformity assessment should not require the use of certain EU technologies when U.S. technologies, which
meet U.S. civil nuclear safety standards, are equally safe. In the nuclear industry, local standards in the EU
may not always conform to international nuclear safety norms, placing U.S. exporters at a disadvantage in
markets where they must compete with firms using substandard parts. EU Member States are also under
pressure to adopt French civil nuclear regulatory standards, which could potentially create a bias against
U.S. firms that adhere to international standards developed by U.S.-domiciled standards developing
organizations (e.g., ASME7) and want to enter the European market. Furthermore, the EU’s approach of
explicitly referencing particular standards potentially undermines innovation and eschews more effective
means of addressing potential regulatory objectives.

Chemicals: Registration, Evaluation, Authorization, and Restriction of Chemicals

The EU regulation concerning the use of chemicals known as REACH (Registration, Evaluation,
Authorisation and Restriction of Chemicals) entered into force on June 1, 2007, and will be fully
implemented by 2018. REACH impacts virtually every industrial sector because it regulates chemicals as
a substance, in preparations, and in products. It imposes extensive registration, testing, and data
requirements on tens of thousands of chemicals. REACH also subjects certain identified hazardous
chemicals to an authorization process that would prohibit them from being placed on the EU market unless
a manufacturer or user has obtained permission from the Commission.

The United States agrees on the importance of regulating chemicals to ensure public safety. The United
States is concerned, however, that REACH appears to impose requirements that are either more onerous on
foreign producers than EU producers or simply unnecessary. For example, stakeholders have raised
concerns that they must provide data as part of the registration process under REACH that is irrelevant to

7
American Society of Mechanical Engineers.

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health and environmental concerns. Additionally, there appears to be inconsistent and insufficiently
transparent application of REACH by EU Member States. The United States and many other WTO
Members have raised concerns regarding various aspects of REACH have been raised at nearly every WTO
TBT Committee meeting for years. WTO Members have emphasized the need for greater transparency in
the development and implementation of REACH requirements and frequently cite the need for further
information and clarification, as well as problems producers have in understanding and complying with
REACH’s extensive registration and safety data information requirements.

Nanomaterials

Among the substances subject to REACH are nanomaterials, or chemical substances or materials that are
manufactured and used at a very small scale (down to 10,000 times smaller than the diameter of a human
hair), which are used in products ranging from batteries to antibacterial clothing. The Commission is
working to adopt implementing regulations to adapt the data requirements for nanomaterials in REACH
registration dossiers. The Commission published an impact assessment regarding the regulations in March
2014. At this time, it is unclear when the Commission will adopt this legislation.

Community Rolling Action Plan

The United States and stakeholders also have concerns about a lack of transparency and associated with the
Community Rolling Action Plan (CoRAP). CoRAP is part of the REACH substance evaluation process
and is updated every March. Its purpose is to allow Member States and the European Chemicals Authority
(ECHA) to prioritize substances they suspect of being hazardous to human health or the environment.
Depending on the outcome of the evaluation, a substance evaluated under CoRAP may be considered for
classification as a substance of very high concern and become subject to authorization and restriction
procedures. It is also possible that after evaluation, a substance will be found to pose no such risk. ECHA
has established criteria for selecting substances for placement on the list. These criteria address concerns
about hazard, exposure, and tonnage. Member States are encouraged, but not obliged, to use the ECHA
criteria. ECHA published the most recent CoRAP list on November 10, 2016. It contains 319 substances,
which either have been evaluated or will be evaluated through 2018. CoRAP preliminary reports should
be made available to interested U.S. companies, even if they have not yet registered the particular substance,
but the reports are currently made available only to registrants. The EU should undertake greater
transparency concerning the CoRAP process, which would both facilitate the EU’s objectives and help
reduce costs and address U.S. stakeholders’ concerns.

Substances of Very High Concern (SVHC) Roadmap

The United States has also continued to raise concerns bilaterally with the EU on the lack of public notice
and comment associated with the “Risk Management Options” (RMO) analysis phase of the SVHC
Roadmap. Under the Commission’s Roadmap for evaluation of individual SVHCs, at the request of the
Commission, a Member State competent authority or ECHA will conduct an RMO analysis to determine
whether regulatory risk management is required for a given substance and to identify the most appropriate
regulatory instrument to address a concern. The regulatory decision may be to pursue authorization or
restriction, address the concern via other legislation, or take no action. The Commission’s SVHC Roadmap
identifies five minimum criteria for the RMO analysis and states that the RMO is not meant to be public.
Beyond this, the Member State authority drafting the RMO has discretion with respect to the level of detail
provided in its analysis and whether or not stakeholder consultation is appropriate. ECHA has said that
documenting the RMO analysis and sharing it with other Member States and the Commission promotes
early discussion and should ultimately lead to a common understanding on the regulatory action pursued.
The United States supports the EU’s efforts to conduct RMO analyses and believes the RMO analysis
should be implemented in a harmonized and consistent manner by Member States. To prevent or minimize

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unnecessary potential adverse effects on trade, the RMO analysis should be subject to public notice and
comment, with the views expressed by commenters taken into account by the Member State or ECHA
irrespective of the domicile of the commenter.

Court of Justice of the European Union, Judgment in the Case C-106/14

On September 10, 2015, in case C-106/14, the Court of Justice of the European Union (CJEU) released an
important ruling on the notification and information duties applicable to the producers and importers of
articles under REACH. The CJEU held that the notification and information duties apply to each individual
component “article” and not just to the whole assembled or finished “article”, for producers and importers
that deal with more than one ton per year of any SVHC present in articles over 0.1 percent by weight.

The court’s conclusion is contrary then to existing ECHA guidance, which only requires notification for
SHVCs on the article-level. The United States is currently investigating the trade impact to manufactured
products such as vehicles, ICT equipment, and medical devices.

In light of the 2015 CJEU decision, ECHA will need to revise its regulation. It has begun implementing a
two-step process to update the applicable 2011 “Guidance on Requirements for Substances in Articles.”

 The first step consisted of the December 2015 publication of a “fast track” update to the guidance
document. The update was intended to bring about the immediate correction of existing documents
in order to bring them in line with the CJEU ruling.

 The second step to be undertaken is to conduct a more comprehensive restructuring and review of
the guidance document, which is to include examples aligned with the CJEU ruling and address the
questions received by ECHA since the publication of the “fast track” guidelines. The United States
understands that this comprehensive review will follow a three-step consultation process, including
consultation of accredited stakeholders.

The United States is concerned that requiring notification of components rather than the final good will
increase burdens on both producers and importers.

Cosmetics: Scientific Committee on Consumer Safety (SCCS) Ingredient Reviews & Amendments to the EU
Cosmetics Regulation

Regulation (EC) No 1223/2009 of the European Parliament and of the Council on cosmetic products (EU
Cosmetics Regulation) provides that the SCCS conduct risk assessments for all ingredients approved for
use in cosmetics in the EU market. Based on SCCS assessments, the European Commission rules on
whether the use of the ingredient should be restricted and, if so, in which Annex within the EU Cosmetics
Regulation it should be listed.

The United States and stakeholders have concerns as to the transparency of the process under which the
SCCS defines the scope of its risk assessments. While the initial request for stakeholder participation and
input into SCCS reviews is public, once an assessment starts, if there is a change in scope or the information
being considered in the assessment, this may not be publically notified. According to SCCS Rules of
Procedure, the Committee solicits additional information on an invitation-only basis. This process can
translate into assessment determinations that are made on the basis of risk assessments that do not fully
consider available scientific evidence or relevant uses of a particular cosmetics ingredient. Furthermore,
the process of petitioning an opinion from SCCS can often entail significant and unexplained delays, with
the overall process often taking two or more years for completion.

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Renewable Fuels: Renewable Energy Directive

In April 2009, the EU adopted the Renewable Energy Directive (RED) (2009/28/EC), with the objective of
helping to lower its greenhouse gas emissions (GHG), reducing its dependence on foreign oil, natural gas,
and coal, and increasing rural development. RED establishes mandatory national targets for the share of
energy from renewable sources by 2020. While the United States supports the emission reduction
objectives of the EU’s measure, concerns remain that its informational and verification requirements are
overly-burdensome and constitute an unnecessary barrier to trade. Furthermore, the United States maintains
that procedures for determining compliance with RED sustainability criteria are unnecessarily rigid and
opaque.

RED also establishes a methodology and accounting system by which Member States may record and
calculate GHG savings as compared to a baseline for fossil fuels. According to the Commission, this
comparison quantifies the total amount of GHG savings in the EU and progresses toward the EU’s overall
goal of a 20 percent reduction in GHG emissions from 1990 levels by 2020. In order to count toward
Member State specific renewable energy use targets, or benefit from incentives, RED requires that biofuels
and feedstocks for biofuels meet certain sustainability criteria, as featured in the RED and Fuel Quality
Directive (FQD) as amended by the Indirect Land Use Change (ILUC) certifications. RED also sets the
reporting and verification requirements for obtaining sustainability certifications. The ILUC Directive,
which entered into force on October 5, 2015, includes a seven percent cap to the contribution of first
generation biofuels (made from crops such as palm oil, soy and rapeseed) to the 10 percent target for
renewable energy in transport by 2020. Further, biofuel suppliers will be obligated to report the estimated
level of greenhouse gas emissions caused by ILUC.

The Commission presented a new Renewable Energy Directive (RED II) for the period 2020-2030 as part
of a comprehensive “Winter Energy Package” of legislative proposals which includes initiatives on
bioenergy sustainability (liquid biofuels and biomass). RED II was adopted by the Commission on
November 30, 2016, and the Commission debriefed the Member States on the content of the full “Winter
Energy Package” at the Energy Council meeting on December 5, 2016. The Commission also debriefed
the European Parliament during the plenary session on December 13, 2016, and already sent its legislative
proposal to the Industry, Energy and Research (ITRE) Committee of the European Parliament and to the
Energy Council for further examination. It is expected to take at least 18 months for the entire legislative
process to be completed.

Under Article 18(4) of RED, which provides for bilateral agreements, the Commission and the United States
jointly established the U.S.-EU Technical Working Group on the RED (TWG) to examine how long-
standing U.S. conservation programs address RED sustainability criteria and to create the framework for a
bilateral agreement to accept U.S. exports of biofuel feedstock as compliant with the sustainability goals of
RED. During the final meetings of the TWG, the Commission stated that U.S. conservation laws and
programs must correspond exactly to those outlined in the RED sustainability criteria if the EU is to
consider U.S. exports of biofuel feedstock as compliant with RED sustainability criteria.

One method to meet the sustainability and GHG savings requirements of RED is to certify biofuel
production through a voluntary certification system. In April 2015, the U.S. Soybean Export Council
(USSEC) submitted an application to the Commission to recognize the U.S. Soybean Sustainability
Assurance Protocol (SSAP) as a voluntary certification scheme. In March 2015, the SSAP was positively
benchmarked against the European Feed Manufacturers’ Federation (FEFAC) Soy Sourcing Guidelines
through the independent International Trade Center (ITC) customized benchmark. SSAP has also met the
Dutch Feed Industry Association’s requirements for sustainable feedstuffs, but the Commission has
indicated it requires additional information and analysis by the U.S. soybean industry before it would be
able to determine whether SSAP meets the RED sustainability criteria. As recently as October 2016, the

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Commission continued to raise issues with USSEC’s voluntary scheme application regarding traceability
and GHG calculations.8

Transport Fuel: Fuel Quality Directive

The EU’s revised Fuel Quality Directive (FQD), adopted in 2009 as part of the EU’s Climate and Energy
package, requires fossil fuel suppliers to reduce the lifecycle greenhouse gas intensity of transport fuel by
six percent by 2020. The directive granted the Commission the power to develop a methodology for
calculating GHG life-cycle emissions for transport fuels. The United States strongly supports the goal of
FQD for reducing GHG emissions. The United States, however, has raised concerns with the Commission
about the lack of transparency and opportunity for public comment in the development of the Commission
proposal for the methodology for calculating GHG life-cycle emissions for transport fuels.

Trucks: Maximum Authorized Dimensions

U.S. stakeholders have long raised concerns that the EU’s truck length requirements were too prescriptive
and unnecessarily restricted U.S. exports of aerodynamic and fuel efficient trucks to Europe. On April 15,
2013, the EU issued a “Proposal for a Directive of the European Parliament and of the Council amending
Directive 96/53/EC laying down for certain road vehicles circulating within the Community the maximum
authorized dimensions in national and international traffic and the maximum authorized weights in
international traffic.” The United States engaged in extensive discussions with the EU at the WTO TBT
Committee and bilaterally in other fora on the overly restrictive nature of this Directive. On April 29, 2015,
the EU adopted the proposed Directive 2015/719/EU amending Directive 96/53/EC that included several
elements to promote greater energy efficiency, including revisions that would allow truck tractor-semitrailer
combinations to exceed 16.5 meters in length and to add flaps to the rear of the vehicle. In particular,
Article 9a allows vehicle combinations to “exceed the maximum lengths laid down in point 1.1 of Annex I
to this Directive provided that their cabs deliver improved aerodynamic performance, energy efficiency and
safety performance.”

Country of Origin Labeling (COOL)

Eight European Member States – Finland, France, Greece, Italy, Lithuania, Portugal, Romania, and Spain
– are in the process of developing and implementing a variety of country of origin labeling (COOL) schemes
that would require an indication of the origin of milk products as well as the origin of milk, meat, and wheat
used as ingredients in certain processed foods. The measures are not being implemented consistently across
EU Member States; they apply to different types of ingredients and finished products, have varying
implementation times, and require different wording on labels. The information required on packaging
varies according to each individual Member State and can include the country of birth, fattening, and
slaughter of animals; country of milking, packaging, or processing for dairy products; and country of
cultivation and processing for wheat.

Affected industries have raised concerns that the new COOL requirements in EU Member States could
impede market access for imported ingredients. In addition, some of the measures could favor goods
produced in certain countries by selectively eliminating the requirements for processed foods produced in
EU Member States, Turkey, or EFTA countries that are part of the European Economic Area.

The United States raised concerns about these measures at the November 2016 TBT Committee. In
particular, the United States noted a number of concerns, including, the treatment of EU versus non-EU
origin products, the amount of recordkeeping that may be required to comply with the measures, the

8
USDA FAS, EU Biofuels Annual 2016.

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apparent favoring of select countries, the impact on U.S. exports, and the failure of the EU or the Member
States to notify the measures under the TBT Agreement, solicit and take into account feedback from
interested stakeholders, and allow a reasonable interval of time between publication and entry into force of
the various measures.

Nutritional Labeling

EU framework regulation 1169/2011 on the provision of food information to consumers went into effect
on December 13, 2014, except for the provision on mandatory nutrition labeling, which became effective
December 13, 2016. The measure regulates the display of product information on product packaging and
online stores ostensibly to provide consumers with information related to nutrition, ingredients, and
allergens.

The United States has concerns that Regulation 1169/2011 appears to provide wide latitude for Member
States to adopt non-uniform and potentially inconsistent implementing regulations. U.S. stakeholders are
thus concerned about the burden of meeting multiple labeling requirements, particularly if those
requirements cannot be met through stickering or supplemental labeling. During the consultative process,
the United States has sought assurances that imported products will be subject to harmonized EU
requirements, regardless of port of entry, and that compliance with national schemes (such as the United
Kingdom’s and Ireland’s traffic light requirements) would remain voluntary. The United States will
continue to closely monitor this issue.

Fishery and Aquaculture Labeling

Commission Regulation 1379/2013 identifies specific requirements for the labeling of fishery and
aquaculture products intended for the retail sector. This regulation only concerns products from Chapter 3
of the Tariff Harmonized System and not products from Chapter 16 (e.g., not canned products). Since
December 13, 2014, all fishery and aquaculture products for sale at retailers and mass caterers must provide
the following information: the commercial name of the species; the production method (e.g., aquaculture
or fishery product); the fishing gear; and the catch area (products caught at sea must identify the area of
capture, which is taken from the FAO list).

The United States is working bilaterally to better understand the rationale and basis for mandatory labeling
requirements that appear more stringent than those found in the Codex General Standard. The United States
is also seeking assurances that only harmonized EU requirements will be mandatory and that national
labeling requirements remain voluntary.

Agriculture Quality Schemes

In 2012, the EU adopted Regulation 1151/2012 “on quality schemes for agricultural products and
foodstuffs.” Regulation 1151/2012 combines into one regulation rules for two different EU schemes and
adds new rules on optional terms. The regulation applies to a range of agricultural products and covers:
Protected Designations of Origin (PDO) and Protected Geographical Indications (PGI); “Traditional
Specialties Guaranteed” (TSG); and optional quality terms. Optional quality terms are intended to provide
additional information about product characteristics such as “first cold-pressed extra virgin olive oil” and
“virgin olive oil.” A separate measure addressing the marketing standards for wine and spirits was notified
to the WTO on September 11, 2011.

The schemes covered by the regulation are: (1) certification schemes for which detailed specifications have
been laid down and are checked periodically by a competent body; (2) labeling schemes, which are subject
to official controls and communicate the characteristics of a product to the consumer. Schemes can indicate

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that a product meets baseline requirements but can also be used to show “value-adding qualities,” such as
specific product characteristics or farming attributes (e.g., production method, place of farming, mountain
product, environmental protection, animal welfare, organoleptic qualities, Fair Trade, etc.).

The United States remains concerned that “place of farming” requirements are unclear, difficult to comply
with, and lack a basis in international standards. International standards promulgated by the Codex
Alimentarius Commission (Codex), for instance, maintain no recommendation for place of farming
designations and has rejected proposals that would have expanded country of origin designations to foods
with multiple ingredients, because such labeling caused consumer confusion.

Further, the United States remains concerned over certain aspects of the TSG requirements, including
whether “prior use of a name” includes a trademark or prior geographical indication (GIs). The United
States is also seeking clarification of the manner of precedence used in determining TSG requirements
relative to trademarks. Despite assurances from the EU that the provisions of EU 1151/2012 “ensure that
a prior trademark is not affected by the registration of a TSG,” it remains unclear whether prior use of a
trademark will be grounds for opposing registration of a TSG. Finally, U.S. stakeholders have expressed
concern about the EU’s decision to shorten the comment period to oppose a registration from six months
to two months.

The United States continues to stress to the Commission that common usage names of products should not
be absorbed into quality schemes, whether for wine or other products. If a Codex standard exists, or if a
name is used in a tariff schedule or by the World Customs Organization, the United States believes that the
name should be excluded from the quality schemes. The United States has further argued that new
certification and labeling quality schemes not be required for market access; however, where the EU
implements such schemes, efforts should be made to acknowledge voluntary U.S. industry definitions.
Similarly, U.S. processes and procedures should be acceptable for labeling requirements and system and
process comparability with industry definitions should be sought in order to minimize any negative market
access impact for U.S. exports.

Wine Traditional Terms

Separate from its regulation on agricultural quality schemes, the EU continues to aggressively seek
exclusive use for EU producers of “traditional terms,” such as “tawny,” “ruby,” and “chateau,” on wine
labels. Such exclusive use of traditional terms impedes U.S. wine exports to the EU, including U.S. wines
that include these traditional terms within their trademarks. U.S. wines sold under a trademark before 2005
can continue to use the terms, but products sold more recently cannot. In June 2010, U.S. stakeholders
submitted applications to be able to use the terms in connection with products sold within the EU. In 2012,
the EU approved the applications for use of two terms, “cream” and “classic,” but the EU’s delayed
application approval process for other terms continues to be a significant concern. The United States has
repeatedly raised this issue in the WTO TBT Committee in recent years and has also pursued bilateral
discussions. Beyond approving the two terms, the EU has not taken any visible steps to address U.S.
concerns.

The Commission has started discussions with the Member States on a possible simplification of wine
labelling set out in Regulation 607/2009, but appears to be facing resistance to any changes that would
lessen the protection of traditional terms.

Distilled Spirits Aging Requirements

The EU requires that for a product to be labeled “whiskey” (or “whisky”), it must be aged a minimum of
three years. The EU considers this a quality requirement. U.S. whiskey products that are aged for a shorter

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period cannot be marketed as “whiskey” in the EU market or other markets that adopt EU standards, such
as Israel and Russia. The United States views a mandatory three-year aging requirement for whiskey as
unwarranted. Recent advances in barrel technology enable U.S. micro-distillers to reduce the aging time
for whiskey. In 2016 the United States continued to urge the EU and other trading partners to end whiskey
aging requirements that are restricting U.S. exports of whiskey from being labeled as such.

Certification of Animal Welfare

The EU is requiring animal welfare statements on official sanitary certificates. Although the United States
supports efforts to promote animal welfare, the EU’s certification requirements do not appear to advance
any food safety or animal health objectives, and thus do not belong on sanitary certificates. The U.S.
position is that official sanitary and phytosanitary certificates – the purpose of which is broadly limited to
prevent harm to animal, plant, or human health and life from diseases, pests, or contaminants – should only
include statements related to animal, plant, or human health, such as those recommended by Codex, OIE,
and the International Plant Protection Convention, or have scientific justification.

Sanitary and Phytosanitary Barriers

The United States remains concerned about a number of measures the EU maintains ostensibly for the
purposes of food safety and protecting human, animal, or plant life or health. Specifically, the United States
is concerned that these measures unnecessarily restrict trade without furthering their safety objectives
because they are not based on scientific principles, maintained with sufficient scientific evidence, or applied
only to the extent necessary. Moreover, the United States believes there are instances where the EU should
recognize current U.S. food safety measures as equivalent to those maintained by the EU, because they
achieve the same level of protection. If the EU recognized the equivalence of U.S. measures, trade could
be facilitated considerably.

Hormones and Beta Agonists

The EU maintains various measures that impose bans and restrictions on meat produced using hormones,
beta agonists, and other growth promotants, despite scientific evidence demonstrating that such meat is safe
for consumers. U.S. producers cannot export meat or meat products to the EU unless they participate in a
costly and burdensome process verification program to ensure that hormones, beta agonists, or other growth
promotants have not been used in their production.

For example, the EU continues to ban the use of the beta agonist ractopamine, which promotes leanness in
animals raised for meat. The EU maintains this ban even though international standards promulgated by
the Codex have established a maximum residue level (MRL) for the safe trade in products produced with
ractopamine. The Codex MRL was established following scientific study by the Joint FAO/WHO Expert
Committee on Food Additives (JECFA) that found ractopamine at the specified MRL does not have an
adverse impact on human health.

The EU’s ban on growth promotant hormones in beef has been found to be inconsistent with its WTO
obligations. Specifically, in 1996, the United States brought a WTO dispute settlement proceeding against
the European Communities (the EU predecessor entity) over its ban on beef treated with any of six growth
promotant hormones. A WTO dispute settlement panel concluded – and a subsequent report of the WTO
Appellate Body affirmed – that the ban was maintained in breach of the EU’s obligations under the WTO
Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement). Following the
failure by the EU to implement the recommendations of the WTO Dispute Settlement Body (DSB) to bring
itself into compliance with its WTO obligations, the United States was granted permission by the WTO in
1999 to suspend concessions. Accordingly, the United States levied ad valorem tariffs of 100 percent on

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imports of certain EU products. The value of the suspended concessions, $116.8 million, reflected the
damage that the hormone ban caused to U.S. beef sales to the EU.

In September 2009, the United States and the Commission signed a Memorandum of Understanding
(MOU), which established a new EU duty-free import quota for grain-fed, high quality beef (HQB) as part
of a compromise solution to the U.S.-EU hormone beef dispute. Since 2009, Argentina, Australia, Canada,
New Zealand, and Uruguay have also begun to ship under the HQB quota. As a result, the market share of
U.S. beef in the HQB quota has decreased and accounted for only 32 percent of the quota in the 2015/2016
quota year. Since 2014, the United States has engaged in discussions with the EU on the future operation
of the MOU to ensure that U.S. producers are compensated through increased export benefits in the EU
market in exchange for the continued suspension of WTO-sanctioned trade action. In December 2016, the
United States announced that it is seeking public comments and will hold a public hearing in connection
with the request of representatives of the U.S. beef industry to reinstate trade action against the EU. The
hearing took place on February 15-16, 2017. The United States is carefully considering the submissions
made.

The United States will continue to engage the EU regarding the unscientific ban on meat and animal
products produced using hormones, beta agonists, and other growth promotants.

Animal Cloning

Currently, the EU Novel Foods and Novel Food Ingredients Regulation (Novel Foods Regulation) issued
in 1997 is the only EU measure that potentially addresses the use of animal cloning for food production.9
The Novel Foods Regulation would appear to encompass food products derived directly from cloned
animals, but not food products derived from the offspring of clones.10 Food products subject to the Novel
Foods Regulation require a pre-market authorization by the EU Member State decision and potentially the
Commission in order to be imported or sold in the EU.

In January 2008, the Commission proposed a revision of the Novel Foods Regulation to simplify the
authorization procedure for placing new food products on the market. The proposed revision failed in
significant part due to a disagreement among the Commission, the Parliament, and the Council regarding
the need for specific rules on food from cloned animals.

In December 2013, the Commission published two new proposals11 on animal cloning, in conjunction with
a new proposal for a novel foods regulation. One of the proposed directives (the Cloning Technique
Proposal) would ban animal cloning for food purposes in the EU and the import of cloned animals or
embryos, while the other (the Cloning Food Proposal) would ban the marketing of food, both meat and
dairy, from cloned animals, but not from their offspring. However, both of these proposals appear to be
inconsistent with risk assessments done by competent authorities in the EU and other countries that show
no differences in terms of food safety between food products produced from cloned animals or their
offspring and those produced from conventionally-bred animals.

9
Regulation (EC) No 258/97.
10
The Novel Foods Regulation covers certain types of “foods and food ingredients which have not hitherto been
used for human consumption to a significant degree within the Community...” Id.
11
(1) Proposal for a Directive of The European Parliament and of The Council on the cloning of animals of the
bovine, porcine, ovine, caprine and equine species kept and reproduced for farming purposes (Cloning Technique
Proposal) and (2) Proposal for a Council Directive on the placing on the market of food from clones (Cloning Food
Proposal).

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In June 2015, the European Parliament’s Agriculture and Rural Development (AGRI) Committee and
Environment, Public Health and Food Safety (ENVI) Committee, adopted a joint report proposing
amendments to the Commission’s aforementioned proposals that would vastly extend their scope and
impact and change the measure from a directive into a regulation. The substance of these proposed
amendments included permanent bans on clones and their descendants for all farmed animals, including
fish and poultry, as well as bans on all agricultural products derived from them, including food, semen, and
embryos. The proposed amendments also included a ban on cloning of animals for sports. In September
2015, the full Parliament, or Plenary, approved the AGRI/ENVI report and amendments. A new EU
framework regulation 2015/2283 on Novel Foods was adopted in November 2015 and published in Official
Journal L 327 on December 11, 2015. Most provisions of the new Novel Foods Regulation will become
applicable on January 1, 2018. Food from clones but not offspring will continue to fall within the scope of
the Novel Foods Regulation until separate legislation on cloning is adopted. Although the EU proposal on
animal cloning was approved by the EU Parliament in September 2015, the file is still at the technical level
in the Council and has reportedly seen no progress. The United States believes the use of cloning
technologies are beneficial for herd improvement and that no differences have been demonstrated in terms
of food safety between food products produced from cloned animals or their offspring and those produced
from conventionally-bred animals.

Agricultural Biotechnology

Delays in the EU’s approval process for genetically engineered (GE) crops has prevented GE crops from
being placed on the EU market even though the events have been approved (and grown) in the United
States. Moreover, the length of time taken for EU approvals of new GE crops appears to be increasing. As
of October 2016, 30 GE events are in the pipeline and the European Food Safety Authority (EFSA) has
issued a further five inconclusive opinions (implying that those events receiving such an opinion are
effectively out of risk analysis procedure until the applicant responds to the point raised by EFSA).

The EU’s own legally prescribed approval time for biotechnology imports is approximately 12 months (six
months for the review with the EFSA and six months for the political committee process
(comitology)). However, in practice, at the end of 2016 total approval times were taking an average of 47
months. In April 2015, the Commission adopted 10 new authorizations for GE crops for food or feed use,
seven renewals of existing authorizations for food or feed imports, and two new authorizations for the
import of GE cut flowers.12 While welcomed, these approvals took 17 months in the comitology
process. Since April 2015, three soy and two corn applications for food and feed imports have completed
the comitology process. On December 4, 2015, the EU authorized the import of the two genetically
engineered corn products for food/feed use. At the time, it was expected that three glyphosate resistant GE
soy traits would also be approved. However, it appears the reauthorization became tied to a separate
political debate. Specifically, some NGOs attempted to link the authorization of these traits and the
reauthorization of the herbicide glyphosate. The risk assessment undertaken by EFSA and published in
November 2015 found that glyphosate was unlikely to pose a carcinogenic threat to humans. On June 29,
2016, after much debate and public exposure, the European Commission agreed to temporarily extend the
authorization for glyphosate for 18 months pending a review by the ECHA. With the glyphosate issue at
least temporarily resolved, the Commission authorized the three GE soybeans for food/feed uses in July
2016.

Between 1998 and 2003, the EU failed to approve any GE products for sale in the EU. In 2003, the United
States initiated a WTO dispute settlement proceeding against the EU. A WTO dispute settlement panel
concluded that the EU applied a general de facto moratorium on the approval of GE products. The WTO
panel found this moratorium was inconsistent with the EU’s obligations under the SPS Agreement because

12
Source: USDA FAS, GAIN Report: EU Agricultural Biotechnology Annual 2015.

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it led to undue delays in the completion of EU approval procedures. The WTO panel also found that various
EC Member State safeguard measures were inconsistent with WTO obligations as they were not based on
a risk assessment.

Exports of U.S. corn have been adversely impacted because of extensive delays in EU approvals of GE
corn products, including stacked products, leading to concerns that the exports may contain a low-level
presence (LLP) of unapproved GE crops that results in the entire shipment being rejected. This possibility
of LLP exists precisely because the United States has approved products that the EU has yet to approve.
U.S. exports of distillers’ dried grains and corn gluten feed continue but could be disrupted by the detection
of content from an unapproved GE corn trait. U.S. rice exports remain well below the levels seen before
the discovery of an unapproved event (LL 601 and 62) in the U.S. rice crop. Concerns regarding the
possible detection of LLP, and subsequent rejection that would likely ensue, has curtailed U.S. exports.
Although no agricultural biotechnology rice varieties are currently grown in the United States, EU approval
of this single rice event (LL62), which was originally requested in the EU in 2004, could reduce commercial
uncertainty associated with LLP concerns. The United States continues to work with the EU to support
trade in corn byproducts and rice, but success will depend on the EU addressing the larger issue of delays
in the biotechnology approval process. The United States continues to urge the EU to participate in
discussions of a practical approach to LLP under the Global Low-Level Presence Initiative.

Pathogen Reduction Treatments

The EU maintains measures that prohibit the use of any substance other than water to remove contamination
from animal products unless the substance has been approved by the Commission. U.S. exports of beef,
pork, and poultry to the EU have been significantly hurt as a result, because the Commission has failed to
approve various pathogen reduction treatments (PRTs). PRTs are antimicrobial rinses used to kill
pathogens that commonly exist on meat after slaughter. The PRTs at issue have been approved by the U.S.
Department of Agriculture (USDA), after establishing their safety on the basis of scientific evidence.

In 1997, the EU began blocking imports of U.S. products that had been processed with PRTs, which have
been safely used by U.S. meat producers for decades. After many years of consideration and delay, in May
2008 the Commission prepared a proposal to authorize the use of the four PRTs during the processing of
poultry, but imposed unscientific highly trade restrictive conditions with respect to their use. Member
States rejected the Commission’s proposal in December 2008. In February 2013, the EU approved the use
of lactic acid as a PRT for beef.

In June 2013, USDA submitted an application dossier for the approval of peroxyacetic acid (PAA) as a
PRT for poultry. In March 2014, EFSA published a favorable Scientific Opinion on the safety and efficacy
of PAA solutions for reduction of pathogens on poultry carcasses and meat. After a long period of inaction,
the Commission eventually put forward the authorization of PAA as one part of a three-pronged strategy to
mitigate campylobacter in poultry. However, it later withdrew the proposal from the Standing Committee
agenda in December 2015, citing lack of evidence of PAA’s efficacy against campylobacter. The
Commission has no plans to put forward the proposal for approval at the Standing Committee at this time.

The United States believes the use of PRTs are a critical tool during meat processing that helps further the
safety of products being placed on the market. The United States has engaged the EU to share scientific
data regarding the safe use of PRTs, and the United States will continue to engage the EU regarding the
approval of PRTs for beef, pork, and poultry.

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Export Certification

EU certification requirements are limiting U.S. agricultural exports such as fish, meat, dairy, eggs,
processed products, and animal byproducts, adding unnecessary costs to the movement of exports in
Europe, irrespective of whether these goods are destined for commercial sale in the EU, transiting through
the EU, or even intended for cruise ships or U.S. military installations located in the EU. These
requirements often appear inconsistent with international standards and to have been implemented without
scientific evidence or a risk assessment. Moreover, the certificates are often very complex and burdensome
to the point that it is very difficult to verify the applicable certification requirements. For example, the level
of detail required on the certificate (e.g., the specific attestation language) necessitates a multitude of forms
being required for each product containing references to multiple levels of EU legislation that in turn cites
other legislation. This creates enormous confusion and burden for manufacturers and exporters, as well as
U.S. regulatory agencies, EU Member State authorities, and EU importers. Codex guidance and ongoing
work in APEC seek to limit certification to the minimum amount of information necessary to ensure the
safety of the product being traded. The United States continues to engage the EU in various international
fora and bilaterally to find a resolution of these concerns regarding the EU’s certification requirements.

Somatic Cell Count

Somatic cell count (SCC) refers to the number of white blood cells in milk. The count is used as a measure
of milk quality and an indicator of overall udder health; however, it does not have any bearing on the safety
of the milk itself. Since April 1, 2012, the EU has required imports of dairy products that require EU health
certificates to also comply with EU SCC requirements. Specifically, the EU requires certification to
establish that the SCC does not exceed 400,000 cells per milliliter, a threshold that is significantly lower
than the U.S. requirement for Grade A milk at 750,000 cells per milliliter. The certification necessary to
meet the EU requirement is burdensome, requiring farm level sampling and a Certificate of Conformance.
Accordingly, while U.S. dairy products can continue to be shipped to the EU, the EU’s SCC requirements
hinder trade by adding unnecessary costs. The United States continues to engage the EU regarding their
SCC requirement in the appropriate technical working groups.

EU Flavorings

In the EU, the food industry can only use flavoring substances that are on the EU flavoring list.13 On July
29, 2015, five substances (1-methylnaphthalene, furfuryl methyl ether, difurfuryl sulphide, difurfuryl ether,
and ethyl furfuryl ether) were deleted from the list. These five substances are generally recognized as safe
(GRAS) by the Flavor and Extract Manufacturers Association (FEMA) for their intended use as flavoring
substances. FEMA makes a GRAS determination following an expert panel’s evaluation of the substance.
The expert panel includes experts in toxicology, organic chemistry, biochemistry, metabolism, and
pathology. Accordingly, the United States and other countries, including China, Japan, Brazil, and Mexico,
accept the use of flavorings deemed by FEMA to be GRAS. In addition, these five substances have already
been evaluated, or are under consideration by, other safety assessment bodies such as JECFA. The United
States will continue to raise this issue with the EU.

Citrus Canker

In 2010, the United States petitioned the EU to remove a requirement that citrus fruit exports to the EU be
sourced from groves displaying no symptoms of the disease citrus canker. This EU requirement has
effectively eliminated EU market access for a majority of Florida citrus groves. The United States provided
the EU with a substantive, peer-reviewed risk analysis that concluded citrus fruit, including symptomatic

13
See Annex I of Regulation 1334/2008) & Regulation 872/2012.

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fruit, was highly unlikely to be a vector of citrus canker. In February 2017, the EU published an
implementing directive to amend import regulations, which will allow greater flexibility in shipping citrus
to Europe.

Proposal for Categorization of Compounds as Endocrine Disruptors

The EU is considering measures that would proscribe the use of various pesticides by the agriculture
industry on the basis that they may be classified as endocrine disruptors (EDs). EDs are naturally occurring
compounds or man-made substances that may mimic or interfere with the function of hormones in the body.
While the United States shares public health concerns with respect to EDs, the United States is concerned
that the EU appears to be contemplating approaches to regulating these compounds that are not based on
scientific principles and evidence, thereby restricting trade without improving public health.

On June 15, 2016, the European Commission presented two draft legal acts outlining scientific criteria to
identify endocrine disruptors in agricultural products. The two acts fall under Biocidal Products legislation
and Plant Protection Products legislation, respectively. In the draft legal acts, the Commission proposes to
use the WHO definition of endocrine disruptors and include examination of all available information in
order to base decisions on weight of evidence. However, the proposal does not specifically state that it will
include consideration of other hazard characterizations such as potency, severity, and reversibility in these
examinations. Without such considerations, the EU may potentially block substances regardless of the
actual level of risk to human health.

The two proposals are expected to progress concurrently through discussions with Member States and
Parliament. The non-objection of Council and Parliament will be required before the Commission can
enforce both. The Standing Committee on Plants, Animals, Food and Feed (SCoPAFF) discussed the
proposals on September 21, 2016, after which the Commission produced a revised proposal that split the
issue into two components: establishing criteria to classify a substance as an endocrine disruptor; and a
proposal to amend the derogation to allow for substances classified as endocrine disruptors to be used under
limited circumstances. There was no consensus among Member States at the December meeting on the EC
proposal. For the February 2017 SCoPAFF meeting, the Commission chose to put only the proposal for
the criteria up for discussion, likely in the hope that it could be approved more quickly without the proposal
for the derogation. However, the Committee again failed to reach a qualified majority on the criteria
proposal. Many of the Member States asked for the re-introduction of the derogation that would allow for
maximum residue levels and import tolerances to be set if a critical plant protection product is banned under
the criteria. At this time, the Commission has given no indication when they will again hold a discussion
about the proposal on how to move forward. The United States continues to monitor this issue and raise
concerns in international and bilateral fora.

Animal Byproducts, Including Tallow

The EU considers all animal byproducts sourced from animals raised under conditions not essentially
identical to those in the EU to be hazardous materials (category 1 and 2 materials). Between 2002 and the
present, the EU has made modifications to its regulations and implementation practices governing animal
byproducts that have resulted in the treatment of U.S. products as being considered hazardous. The current
EU interpretation of the animal byproducts regulations could potentially prevent most exports of U.S.
animal byproducts. Several Member State border inspection posts have already begun to block
consignments of various technical blood products.

Tallow exported to the EU must meet criteria that are not scientifically justified and significantly exceed
the recommendations of the World Animal Health Organization (OIE). The United States has requested
that tallow be allowed entry into the EU for any purpose without verification other than that the tallow and

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derivatives made from this tallow contain no more than a maximum level of insoluble impurities consistent
with international guidelines. Specifically, tallow with less than 0.15 percent insoluble impurities does not
pose any risk of bovine spongiform encephalopathy (BSE). Tallow under these specifications should be
allowed for import without any animal health-related requirements according to the OIE’s international –
and scientifically based – guidelines.

Used cooking oil (UCO) is used for the production of biodiesel. Currently, individual EU Member States
implement national measures for the importation of UCO. However, in 2016 the EU circulated a draft
regulation to harmonize requirements EU wide. The draft requirements follow the EU’s non-science based
approach regarding importation of tallow and would curtail U.S. exports of UCO to the EU. The United
States provided feedback in writing to the EU on their proposed measure and is working with the EU to
resolve these concerns.

Live Cattle

Live cattle from the United States are not authorized to be exported to the EU, or transited through the EU
on route to third countries, due to EU certification requirements for several bovine diseases. Although the
U.S. Animal and Health Inspection Service (APHIS) successfully resolved issues related to bovine leucosis
and bluetongue in 2003, the EU subsequently established certification requirements for BSE that precluded
U.S. exports. Since then, the EU model certificate has been amended to align the BSE requirements with
the OIE Code. Although the United States can now meet the BSE certification requirements, U.S. exporters
remain frustrated because the United States and EU have not agreed on the conditions and format for the
export certificate. APHIS continues to work with the EU to resolve the remaining import health conditions
and agree on a mutually acceptable certificate through the Animal Health Technical Working Group.

Certification Requirements for Marinated Pork

The EU meat preparations certificate for marinated pork includes the condition that the product must be
frozen. The United States is concerned that this condition has resulted in a de facto ban on shipments of
chilled marinated pork, which by definition is not frozen. The United States will continue to engage with
the EU on this issue.

Specified Risk Materials Certification Requirement

The EU has a different definition of specified risk materials (SRM) than the United States for the animal
tissues most at risk of harboring the transmissible spongiform encephalopathies. The EU requires that
materials exported to the EU meet the EU’s SRM definition and be derived from carcasses of animals that
can be confirmed as never having been outside of regions that the EU considers to be of negligible risk for
BSE. Although the United States has been recognized by OIE as having negligible risk, the source cattle
for U.S. ruminant origin animal byproduct exports may not necessarily come from negligible risk countries.
The SRM requirement thus unnecessarily impedes U.S. exports of ruminant origin animal byproducts and
would potentially limit the market for ovine/caprine meat were other market impediments removed.

This requirement otherwise has not been an issue for bovine meat for human consumption, because the
special EU required production controls in the non-hormone treated cattle (NHTC) program already
provides the necessary verifications regarding the history of the animal. The United States has requested
the removal of the EU’s “born and raised” requirement for all U.S. commodities. Consistent with the
recommendations of OIE, it is the BSE status of the country of export that should determine whether SRMs
have to be removed. The United States continues to raise this issue in the appropriate bilateral technical
working groups and the WTO SPS Committee.

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Pesticides and Maximum Residue Limits

Regulation (EC) No. 1107/2009, which governs the registration of crop protection products, establishes
several hazard-based “cut-off” criteria that exclude certain categories of products from consideration for
normal authorization for use in the EU. For such products, the EU will not perform a risk assessment.
Rather, it will discontinue EU authorization for a particular product at the time of re-approval, as has already
happened for some substances, or, in the case of new products, declare them to be ineligible for
authorization, based solely on their intrinsic properties, without taking into account important risk factors
such as level of exposure or dosage. The United States is concerned that increasing numbers of safe and
widely-used substances will not be reapproved or not have reasonable import tolerances set for their use
due to these arbitrary cut-off criteria when current registrations expire.

MRLs and import tolerances are established under separate legislation, Regulation (EC) No. 396/2005,
which is risk-based rather than hazard-based. The United States is concerned that for substances not
approved under Regulation 1107/2009 due to the cut-off criteria, the EU has the authority and mandate to
ignore the risk assessment process established under Regulation 396/2005 and automatically reset MRLs
and import tolerances to the default level of 0.01 mg/kg, which is not commercially viable.

As the number of substances ineligible for reauthorization by the EU increases, and as the EU resets the
corresponding MRLs and import tolerances to the default level, the significant negative effect on
agricultural production and trade is likely to increase. U.S. stakeholders have estimated the potential
damage to U.S. exports at over $5 billion and global trade damage at over $75 billion. Discontinuing the
use of critical substances without a proper science-based risk assessment is not a realistic option for the EU,
since doing so would have serious adverse effects on agricultural productivity and global markets.

Fosetyl-al

Fosetyl-al is a fungicide that is not authorized to be used on nut trees in the United States. The United
States does allow the use of phosphonate fertilizers on nut trees, however, because such fertilizers have low
toxicity. Residues of phosphonic acid on crops such as tree nuts could result from the use of fungicides or
fertilizers containing phosphonic acid. In late 2013, the Commission changed the designation of
phosphonates as both a fertilizer and pesticide to only a pesticide. In doing so, residue levels detected on
crops resulting from either pesticide or fertilizer use would be covered under the same MRL. However,
after changing the designation, the Commission did not extend the number of crops covered by the MRL
to include those crops that might be grown with phosphonate fertilizers. The application of the existing
fosetyl-al MRL without extending the crops covered by the MRL could result in several U.S. nuts and fruits
exceeding the MRL and thus being prohibited from the EU market.

On November 9, 2015, the PAFF approved the draft Commission Regulation to extend the temporary MRL
of 75 mg/kg for almonds, cashew nuts, hazelnuts, macadamias, pistachios, and walnuts until March 1, 2019.
Under the higher MRL, U.S. trade is able to continue. The draft act was formally adopted by the
Commission on January 25, 2016, but made retroactive to January 1, 2016, to minimize trade disruptions.
The Commission instructed Member States to follow this guidance for import checks and sampling. An
import tolerance application to replace the temporary MRL for tree nuts is under currently under review in
the EU.

The United States was pleased by the extension of the temporary MRL for tree nuts. However, a number
of other U.S. producers were affected as a result of the temporary fosetyl-al MRL reverting to the default
level of 2 mg/kg. For example, exports of fresh and processed commodities such as stone fruits (apricots,
cherries, peaches, and plums), blueberries, figs, and papayas became subject to the default MRL as of
January 1, 2016. The berry industry is gathering residue monitoring data and preparing a dossier to submit

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to the Commission in support of a higher MRL in early 2018, but in the meantime, more than $100 million
of fresh and dried fruit and berry exports (including $68 million of dried plums alone) may no longer be
able to enter the EU.

Diphenylamine

In 2009, the EU removed Diphenylamine as a plant protection product authorized for use within the EU.
Subsequently, the EU established a temporary MRL of 0.1 parts per million (ppm) for Diphenylamine on
apples and pears. The United States and Codex have a harmonized standard of 10 ppm for apples and 5
ppm for pear. The EU MRL was implemented on March 2, 2014, and affects both domestic and imported
products. In January 2016, the MRL was extended for two additional years and will be reviewed by January
22, 2018, at which time the EU may set an even lower MRL. The MRL of 0.1 ppm already greatly limits
the use of Diphenylamine on U.S. products destined for the EU. Further reducing the MRL below 0.1 ppm
has no basis in public health protection, given that the United States and Codex have found residue levels
ten times higher than the current EU MRL for apples to be safe for consumers. Such a low MRL could also
result in rejection of untreated fruit due to inadvertent cross-contamination during handling and storage.
Without the use of Diphenylamine or a workable MRL that accounts for cross contamination, the European
market is significantly limited for U.S. apple and pear exports. The United States will continue to engage
the EU regarding this issue.

Agriculture Biotechnology Cultivation Opt-Out

In March 2015, the EU adopted a directive that allows Member States to ban the cultivation of genetically
engineered (GE) plants in their respective territories for non-scientific reasons. Under the transitional
measures, the Member States had until October 3, 2015, to request to be excluded from the geographical
scope of the authorizations already granted or in the pipeline. Nineteen Member States have “opted-out”
of GE crop cultivation for all or part of their territories. These decisions will not lead to a change in the
field, since none of the five Member States (Spain, Portugal, Czech Republic, Slovakia, and Romania) that
currently grow GE corn are opting out.14

Seventeen Member States and four regions in two countries have opted-out of cultivation using
biotechnology seeds. The 17 Member States that requested their entire territory to be excluded from the
geographical scope of biotechnology applications are Austria, Bulgaria, Croatia, Cyprus, Denmark, France,
Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Slovenia, and
Poland. The four regions are Wallonia in Belgium and Northern Ireland, Scotland, and Wales in the United
Kingdom. All of these Member States and regions have decided to ban the cultivation of Monsanto 810
corn (MON810) and the seven varieties of corn that were in the pipeline in 2015, apart from Denmark and
Luxembourg that have only banned MON810 and three of the seven varieties of corn in the pipeline.

Member State SPS Measures:

Austria: After the release of EU Directive 2015/412, which allows Member States to restrict or ban the
cultivation of GE plants in their territory, the Austrian government issued the Biotechnology Cultivation
Framework Law on August 3, 2015. This law streamlines the requirements for Austrian states to continue
banning the cultivation of biotechnology crops. The specific federal bans are for the cultivation of MON810
and the import and processing of Monsanto’s GT73 rapeseed, Monsanto’s 863 corn, and other non-U.S
varieties.

14
Source: USDA FAS, GAIN Report: 19 European countries restrict the cultivation of GE crops.

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Bulgaria: In 2015, Bulgaria decided to ban entirely the cultivation of Monsanto 810 corn (MON810), seven
varieties of corn, soybeans 40-3-2, and carnation Moonshadow 1. The ban also extended to field research.

Poland: Poland’s Feed Act of 22 July 2006 (OJ 2006 No. 144, item 1045) includes a prohibition on the
manufacture, marketing, and use of GE feed and GE crops intended for feed use. The Polish parliament
suspended the ban until January 1, 2017. The Parliament is currently working on prolonging this
suspension, with the lower house voting in early November to extend the suspension until January 1, 2019.
The senate must now vote on the measure.

French Ban on Food Packaging Containing Bisphenol A

The production or import of food containers containing Bisphenol A (BPA) has been banned in France
since January 1, 2015. The law applies to all products manufactured using BPA, where the BPA is
“intentionally” used to manufacture part or all of the final product, or where the BPA comes from an
environmental or adventitious source. The French law contradicts an EFSA opinion of January 21, 2015,
which stated that BPA does not present any risk to consumers. On September 17, 2015, France’s
Constitutional Commission issued a ruling on the legality of the BPA as presented by the European and
International Plastics industry. The Constitutional Commission overturned the ban on BPA in food
containers produced in France for export, but upheld the prohibition of BPA in the sale and import of
substances in France on the basis of the precautionary principle. In parallel to this action, the Commission
initiated an infringement procedure against France for violation of the EU single market. On November
20, 2015, a roadmap was released with five different possible outcomes from the Commission, ranging
from accepting the BPA ban for the entire EU to overturning France’s ban partially or completely.

MARKET ACCESS

Tariffs

The EU’s average applied MFN tariff rate is 4.8 percent. The average agricultural tariff rate is 10.9 percent,
and the average non-agricultural rate is 3.9 percent. All of the EU’s tariffs are bound at the WTO.

Although the EU’s tariffs are generally low for non-agricultural goods, there are also some high tariffs that
affect U.S. exports, such as rates up to 26 percent for fish and seafood, 14 percent for audio-visual
equipment, 10 percent for passenger vehicles, 22 percent for trucks, 6.5 percent for fertilizers and plastics,
10 percent for processed wood products, and 14 percent for bicycles.

Non-Agriculture

Member State Measures: Pharmaceutical Products

U.S. pharmaceutical stakeholders have expressed concerns regarding several Member State policies
affecting market access for pharmaceutical products, including nontransparent procedures and a lack of
meaningful stakeholder input into policies related to pricing and reimbursement, such as therapeutic
reference pricing and other price controls. Such policies reportedly create uncertainty and unpredictability
for investment in these markets and can undermine incentives to market and innovate further. These
policies have been identified in several Member States, including Austria, Belgium, Cyprus, Czech
Republic, France, Hungary, Italy, Lithuania, Poland, Portugal, Romania, and Slovakia. Additional detail
on some of these Member State policies is set out below. Pharmaceutical firms have also expressed concern
regarding recent changes to European Medicines Agency (EMA) policy regarding disclosures of clinical
trial data, including potential disclosure of confidential commercial information submitted to EMA by

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pharmaceutical firms seeking marketing authorization. The United States continues to engage with the EU
and individual Member States on these matters.

Austria: U.S. companies have expressed concern regarding the degree of transparency, and opportunity for
meaningful stakeholder input, relating to the reimbursement rules and determinations for biosimilar
pharmaceutical products and relating to the process, rules and determinations for providing rebates for
drugs. U.S. companies also criticize as excessive the “solidarity contribution” for the sector ($137 million
in 2016 plus a growth-related contribution of up to $88 million in 2017 and again in 2018). This required
contribution by the sector, which is part of Austria’s deficit reduction policy, is reportedly a prerequisite to
receiving reimbursement for prescribed drugs.

Belgium: Over the past 15 years, U.S. pharmaceutical companies have repeatedly expressed concern about
the Belgian government’s lack of adequate transparency in the decision-making process related to cost-
containment measures in the pharmaceutical sector. These companies have identified several tax-related
measures, such as a 6.73 percent turnover tax, a 1.0 percent crisis tax, a 0.13 percent marketing tax, an
orphan drug tax, and the claw-back tax (an additional 3.28 percent of turnover in 2016), as examples of
such concerns. In 2016, taxes under these measures totaled €370 million, and constituted about half of the
budget cuts in the Belgian healthcare system in 2017. The United States continues to highlight the need for
closer dialogue with the Belgian government and meaningful opportunities for stakeholder input into budget
and pricing decisions.

Czech Republic: While pharmaceutical approvals in the Czech Republic often exceed the EU timetables,
U.S. stakeholders report that the time required for such approvals has decreased incrementally in recent
years. Regarding the Czech Republic’s system for determining pricing and reimbursement levels for
pharmaceutical products, U.S. stakeholders continue to express concerns about such determinations. For
example, U.S. stakeholders continue to raise questions regarding the Czech government’s practice of setting
maximum medicine prices based on the average of the three lowest prices in a basket of countries (currently
a group of 18 Member States). Such determinations should be made transparently and with meaningful
opportunities for stakeholder input, as well as engagement by Czech authorities with stakeholders regarding
concerns about whether such determinations reflect market circumstances in the Czech Republic or
adequately incentivize innovation in research and development of pharmaceutical products. Additionally,
the United States urges the Czech Republic to engage meaningfully with stakeholders regarding their
concerns that such policies incentivize third parties to re-export pharmaceuticals to third-country markets,
where they are sold at a profit.

France: Pharmaceutical industry stakeholders continue to raise concerns about the French pharmaceutical
market, including with respect to the significant tax burden on the industry and the constraints facing the
sales of reimbursable medicines, sales of which have dropped by two percent for the fourth consecutive
year. As an example of such constraints, U.S. stakeholders have expressed concern that market access for
drugs in France is slower than elsewhere in Europe, resulting from delays in reimbursement approvals of
as much as 440 days after marketing authorization, compared to the 180 days required by EU law.

Hungary: Pharmaceutical manufacturers have expressed concerns regarding delays in reimbursement


approvals and the lack of transparency and stakeholder engagement in Hungarian government volume and
pricing determinations. Stakeholders are also concerned with a series of tax measures, including high
sector-specific taxes, high taxes levied on pharmaceutical companies of roughly $50,000 per year for each
sales representative that the company employs, and a claw-back tax that requires pharmaceutical companies
to pay for any government spending on drugs that exceeds the pharmaceutical budget. U.S. stakeholders
express concern about the Hungarian government’s pricing and reimbursement policies, which include
extended delays in decision-making and reimbursement and frequent changes to the list of drugs approved
for reimbursement. The delays in decision-making, and especially the claw-back tax, cause considerable

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unpredictability in the Hungarian market. The United States urges the Hungary to engage meaningfully
with stakeholders regarding their concerns.

Italy: U.S. healthcare companies face an unpredictable business environment in Italy, which includes
highly-variable implementation of complex budget policies. One such policy is the “pay-back system,” for
hospital pharmaceutical purchases, which was first applied in 2013. It requires that pharmaceutical
companies pay back 50 percent of the amount spent over budgetary limits for pharmaceutical spending.
The pharmaceutical companies pay back the overspending to the national government through the Italian
Drug Agency (AIFA), which is the organization in charge of calculating the overspending and collecting
return payments. The central government determines the overall annual budget for pharmaceutical
products, which is transferred to each region responsible for managing the healthcare system locally.
Industry estimates that the Italian government has asked for roughly $1.6 billion from pharmaceutical
companies between 2013 and 2016 as part of this policy. U.S. pharmaceutical firms account for 30 percent
of the market but are asked to contribute 50 percent of the pay-back amount. While several U.S. and
European companies have prevailed on appeal to the Regional Administrative Court when challenging the
2013 pay-back calculations, legal challenges to some of the 2014 and 2015 calculations are still pending.
Furthermore, in August 2015 the Italian government published a law (D.L. 78/2015) applying the pay-back
system to hospital purchases of medical equipment. That same law authorized hospitals to renegotiate
signed agreements with medical device suppliers in order to reduce the unit price or purchase volume as
previously defined in the contract. This law has been approved but a mechanism or plan for implementation
has not yet been put forward. Since this law was introduced, the government has not provided further
guidance or legislation on its implementation, creating significant uncertainty among U.S. medical device
companies operating in Italy.

Stakeholders have also raised concerns regarding delays in Italy related to reimbursement
determinations. While reimbursement delays have decreased in recent years, the average time between
marketing authorization and reimbursement approval in Italy continues to exceed the EU average as well
as the maximum period permitted by EU law.

Lithuania: The United States continues to engage with the government of Lithuania regarding
pharmaceutical market access issues. Discussions between the Health Ministry and U.S. stakeholders have
made little progress to add innovative drugs to the government’s reimbursement list. Stakeholders remain
concerned about the lack of transparency in the pricing and reimbursement process for innovative drugs.

Poland: U.S. stakeholders report improved engagement with the Ministry of Health regarding the
development and implementation of cost-containment measures affecting pharmaceutical reimbursement
and pricing policies. However, U.S. companies have expressed concern regarding the tendering processes
and the transparency of, and opportunity for meaningful stakeholder input in, reimbursement rules and
determinations for biosimilar pharmaceutical products. Poland is in the process of drafting a new
Reimbursement Law that would move from a cost recovery pricing model to a price justification pricing
model for so-called orphan drugs. The United States urges Poland to engage meaningfully with
stakeholders regarding their concerns that the new Law could potentially put confidential commercial
information at risk of disclosure.

Portugal: Pharmaceutical companies have raised concerns in the past regarding the patent dispute
resolution mechanism established under Portuguese Law No. 62/2011, which has been in effect since
January 2012. The law does not provide for injunctive relief with respect to the marketing of
pharmaceutical products that infringe patents covering pharmaceuticals already authorized to be on the
market. Instead, the law provides only for damages for patent infringement. Additionally, U.S.
stakeholders believe that the expedited arbitration mechanism is costly, lacks injunctive relief, and has
resulted in questionable rulings.

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Romania: Innovative pharmaceutical producers have identified several significant challenges in Romania
resulting from the government’s failure to update the lists of innovative pharmaceuticals that are eligible
for reimbursement under the national health system, despite repeated requests. According to stakeholder
reports, in 2016 Romania started the process of adding several new innovative drugs to the reimbursement
list and concluded the process of developing treatment protocols to make twelve new drugs available to
patients in January 2017. Numerous applications remain pending with no progress. This severely
undermines the ability of U.S. pharmaceutical companies to introduce newer drugs in Romania because the
National Health Insurance House will not pay reimbursement for drugs that are not included on the
reimbursement list. Both innovative and generic pharmaceutical companies also have started to withdraw
drugs from the Romanian market, as the low official prices set in Romania can fall below production costs
and create parallel trade problems. The claw-back tax, equivalent to 18.89 percent of total gross sales for
the fourth quarter of 2016, is another major challenge for U.S. stakeholders. This tax rate is determined on
the basis of the difference between the state’s budget for reimbursable drugs and the amount actually spent
on the drugs. U.S. stakeholders continue to raise concerns regarding a lack of transparency, particularly in
pricing and computation of the claw-back tax.

Slovakia: The process for marketing approval of new pharmaceutical products in Slovakia reportedly lacks
transparency, and decision makers have been reported to miss deadlines with some frequency. Medicine
prices in Slovakia are capped based on the average of the three lowest prices within the EU. Stakeholders
report that this methodology incentivizes third parties to re-export pharmaceuticals to third-country
markets, where they are sold at a profit.

Uranium

The United States is concerned that non-transparent EU policies may restrict the import into the EU of
enriched uranium, the material from which nuclear power reactor fuel is fabricated. The EU appears to
limit imports of enriched uranium in accordance with the terms of the Corfu Declaration, a joint 1994
European Council and European Commission policy statement that has never been made public or notified
to the WTO. The Corfu Declaration appears to limit the acquisition of non-EU sources of supply of
enriched uranium, reportedly by reserving 80 percent of the EU civilian enriched uranium market for
European suppliers. The United States has conveyed to the Commission its concerns about the non-
transparent nature of the Corfu Declaration and its application.

Agriculture

Bananas

In June 2010, the United States and the EU signed an agreement designed to lead to a settlement of the
longstanding dispute over the EU’s discriminatory bananas trading regime. In the agreement, the EU
agreed not to reintroduce measures that discriminate among foreign banana distributors and to maintain a
nondiscriminatory, tariff-only regime for the importation of bananas. The U.S.-EU agreement
complements a parallel agreement, the Geneva Agreement on Trade in Bananas (GATB), between the EU
and several Latin American banana-supplying countries (also signed in June 2010), which provides for
staged EU tariff cuts to bring the EU into compliance with its WTO obligations.

The agreements marked the beginning of a process that, when completed, will culminate with the resolution
of all of the various banana disputes and claims against the EU in the WTO. The GATB entered into force
on May 1, 2012, and certification by the WTO of the EU’s new tariffs on bananas was completed on October
27, 2012. On November 8, 2012, the EU and the Latin American signatories to the GATB announced that
they had settled their disputes and claims related to bananas. On January 24, 2013, the U.S.-EU bananas

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agreement entered into force. The final step called for in the U.S.-EU agreement is settlement of the U.S.
bananas dispute with the EU, provided certain conditions are met.

Concerns have been expressed by U.S. stakeholders about actions taken by Italian customs authorities, and
related decisions taken by Italian courts, challenging the use of certain EU banana import licenses under
pre-2006 EU regulations. The United States is pressing the Commission to clarify its position on this
matter.

Husked Rice Agreement

The United States has ongoing concerns regarding the operation of the U.S.-EU husked rice agreement,
which has been in effect since 2005. Under the terms of this bilateral agreement, negotiated as a result of
the EU’s decision to modify the tariff concessions agreed to in the WTO Uruguay Round, the applied tariff
for husked rice imports from the United States is determined by the total quantity of husked rice (excluding
basmati) imported by the EU, and is adjusted every six months. The United States will continue to seek
improvements in the access to the EU market for U.S. rice, including the reduction and elimination of rice
tariffs.

Meursing Table Tariff Codes

Many processed food products, such as confectionary products, baked goods, and miscellaneous food
preparations, are subject to a special tariff code system in the EU. Under this system, often referred to as
the Meursing table, the EU charges a tariff on each imported product based on the product’s content of milk
protein, milk fat, starch, and sugar. As a result, products that the United States and other countries might
consider equivalent for tariff classification purposes sometimes receive different rates of duty in the EU
depending on the particular mix of ingredients in each product. The difficulty of calculating Meursing
duties imposes an unnecessary administrative burden on, and creates uncertainty for, exporters, especially
those seeking to ship new products to the EU.

Subsidies for Fruit and Vegetables

The EU Common Market Organization (CMO) provides a framework for market measures under the EU’s
Common Agricultural Policy (CAP), including for measures related to the promotion of fruit and
vegetables. Implementing rules, covering fresh and processed products, are designed to encourage the
development of producer organizations (POs) as the main vehicle for crisis management and market
promotion. The CMO makes payments to POs for dozens of products, including peaches, citrus fruits, and
olives. In 2015 a new basic payment scheme and greening payments were introduced, replacing the single
payment scheme. Direct payments are also paid to support certain processing sectors, including, for
example, peaches for juicing in Greece. The general lack of transparency around the distribution of EU
subsidies at the Member State level in the fruit and vegetable industry raises questions about whether the
payments are decoupled from production, and U.S. producers remain concerned about potential hidden
subsidies. The United States continues to monitor and review EU assistance in this sector, evaluating
potential trade-distorting effects.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

As part of its Digital Single Market (DSM) strategy, the European Commission on September 14, 2016,
issued a package of proposals aimed at updating and reforming EU rules related to copyright, with the stated
goal of addressing legal uncertainty for both rights holders and users with regard to certain uses of
copyright-protected works in the digital environment. This package included: (1) a proposed Directive on
Copyright in the Digital Single Market (COM(2016) 593 final); (2) a draft Regulation laying down rules

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regarding online broadcasting of television and radio programs (COM(2016) 594 final); (3) a draft
Regulation regarding the cross-border exchange between the EU and third countries of accessible format
copies of copyright-protected works for persons who are blind, visually impaired, or print-disabled
(COM(2016) 595 final); (4) a draft Directive on permitted uses of copyright-protected works for the blind,
visually impaired, or print-disabled (COM(2016) 596 final); and (5) a Communication on promoting a fair,
efficient, and competitive European copyright-based economy in the DSM (COM(2016) 592 final).

The following provisions in this package of copyright proposals may raise concerns from a trade
perspective:

 A new right for press publishers. According to the Commission, the contribution of publishers in
producing press publications needs to be recognized and further encouraged to ensure the
sustainability of the publishing industry. The Commission proposed the introduction of rights and
remuneration for publishers related to copyright for the reproduction and making available to the
public of press publications in the online environment.

 “Value gap” provision. Online service providers that store and provide access to the public to
copyright-protected works uploaded by their users would be obligated to deploy means to
automatically detect songs or audiovisual works that rights holders have identified and agreed with
the platforms either to authorize or remove.

 Mandatory exceptions in the field of research and education. The proposal includes an exception
for public interest research institutes regarding the use of text and data mining technologies for the
purposes of scientific research, as well as exceptions for illustrations used for teaching in the online
environment and for digitization of works by cultural heritage institutions.

 Rules regarding online broadcasting. Aimed at removing perceived obstacles to the creation of a
DSM, this proposal has two main provisions, which would: (1) apply a “country of origin” principle
to online services related to an initial broadcast; and (2) require rights holders to license certain
retransmission rights through collective rights management societies.

As this package of proposals moves to the Parliament and Council, the United States will continue to engage
with various EU entities to ensure that the equities of U.S. stakeholders are protected.

The December 2015 “Proposal for a regulation of the European Parliament and of the Council on ensuring
the cross-border portability of online content services in the internal market” (COM(2015) 627 final) seeks
to give EU subscribers to online content services the ability to access this content when temporarily present
in another Member State. Following a vote on the proposal in the Legal Affairs Committee of the European
Parliament on November 30, 2016, the Parliament and the Council initiated negotiations on a compromise
text, with the aim of concluding the legislative process in the first half of 2017. A Parliament plenary vote
is scheduled for April 2017, to be followed by final Council consideration.

In January 2016 a new Trademark Directive (2015/2436) entered into force. EU Member States were given
three years to transpose the directive into their national laws. A Trademark Regulation (2015/2424) also
entered into force in early 2016. The United States continues to work with the EU and its Member States
on trademark issues and is following implementation of the trademark package closely.

Regarding trade secrets, a “Directive on the protection of undisclosed know-how and business information
(trade secrets) against their unlawful acquisition, use and disclosure” (2016/943), was adopted by the
Parliament and the Council on June 8, 2016. The aim of the directive is to standardize the national laws of

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EU Member States against the unlawful acquisition, disclosure, and use of trade secrets. The directive also
harmonizes the definition of trade secrets. EU Member States must bring into force the laws and
administrative provisions necessary to comply with the directive by June 2018.

With respect to geographical indications (GIs), the United States remains troubled with an EU system that
provides overbroad protection of GIs, adversely impacting the protection of U.S. trademarks and of market
access for U.S. products that use generic names. Regulation 1121/2012, for example, contains numerous
problematic provisions with respect to the protection and enforcement of protected designations of origin
(PDOs) and protected geographical indications (PGIs). These troubling provisions include those governing
the scope of protection of PDOs and PGIs, including expansive rules addressing evocation, extension, co-
existence, and translation, among others, which not only adversely affect trademark rights and the ability
to use generic names, but also undermine access to the EU market for U.S. rights holders and producers.
As confirmed in the recital to Regulation 1121/2012, this measure also serves as the basis for the EU’s
international GI agenda, which includes requiring EU trading partners to protect and enforce in their
markets lists of specific EU GIs, according to EU rules, with often only very limited due process
requirements to safeguard existing producers, rights holders, consumers, importers, and other interested
parties.

The EU adopted its current GI regulation for food products, Council Regulation (EC) 510/06, in response
to findings adopted by the WTO DSB in a successful challenge brought by the United States (and a related
case brought by Australia) that asserted that the EU GI system impermissibly discriminated against non-
EU products and persons. The DSB also agreed with the United States that the EU could not create broad
exceptions to trademark rights guaranteed by the TRIPS Agreement. The United States continues to have
concerns about this regulation and intends to monitor carefully both its implementation and current
initiatives to modify it. These concerns also extend to Council Regulation (EC) 479/08, which relates to
wines, and to Commission Regulation (EC) 607/09, which relates, inter alia, to GIs and traditional terms
of wine sector products. The United States is carefully monitoring the implementation of each of these
regulations.

The EU also continues to consider expanding the scope of GI protection in the EU territory to include non-
agricultural products. At present, EU law only harmonizes the protection of GIs in the EU for wines, spirits,
foodstuffs, and agricultural products. On July 15, 2014, the Commission issued a green paper entitled
“Making the most out of Europe’s traditional know-how: a possible extension of geographical indication
protection of the European Union to non-agricultural products” (COM(2014) 469 final). This was followed
by the Parliament’s adoption of a resolution inviting the Commission to propose legislation providing for
such extension. The United States is closely monitoring EU proposals and developments relating to the
possible extension of GI protection beyond existing product categories.

Finally, the United States remains extremely concerned by the conduct and outcome of the 2015 World
Intellectual Property Organization (WIPO) negotiations to expand the Lisbon Agreement for the Protection
of Appellations of Origin and their International Registration to include GIs. Of particular concern to the
United States was the manner of engagement in these negotiations by the European Commission and by
several EU Member States, including the Czech Republic, France, Greece, Italy, and Portugal, which took
precedent-setting steps to deny the United States and the vast majority of WIPO countries full negotiating
rights, and to depart from long-standing WIPO practice regarding consensus-based decision-making in this
international organization. Likewise, the resulting text – the Geneva Act of the Lisbon Agreement – raises
numerous and serious legal and commercial concerns, including with respect to the degree of inconsistency
with the trademark systems of many WIPO countries and could have significant negative commercial
consequences for trademark holders and U.S. exporters that use generic terms.

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Member State Measures

Generally, EU Member States maintain high levels of intellectual property rights (IPR) protection and
enforcement. While some Member States made improvements in 2016, the United States continues to have
concerns with respect to the IPR practices of several countries. The United States actively engages with
the relevant authorities in these countries and will continue to monitor the adequacy and effectiveness of
IPR protection and enforcement, including through the annual Special 301 review process.

Austria: U.S. companies report some gaps in criminal liability, insufficient specialization of judges dealing
with trade secrets, low criminal penalties, and procedural obstacles, which limit efforts to effectively
combat infringement.

Bulgaria: Bulgaria continues to be listed on the Special 301 Watch List in 2016 after it was added in the
2013 Special 301 Report. U.S. stakeholders report continued concerns about IPR enforcement, including
with respect to piracy over the Internet, despite alternative paid options for both music and films. Rights
holders and police try to restrict new film releases on illegal sites, but illegal downloads continue.

Stakeholders have also highlighted the need for Bulgaria to enhance the effectiveness of its patent and
trademark enforcement system, including with respect to prosecutions, and to address bad faith trademark
registration at the Bulgarian Patent Office. Bulgaria has an established process for administrative rulings
and appeals in cases of patent and trademark infringement, although decisions issued in those adjudicatory
proceedings remain a source of concern.

Czech Republic: While sale of copyright-infringing media in physical form continues at a modest level in
outdoor markets, the Czech Republic has not been included on a Special 301 Watch List since 2009, and
no rights-holding organization proposed the country’s inclusion in 2016. Due to the advance of technology,
digital piracy in the Czech Republic, as elsewhere, has migrated primarily to the online realm, where rights-
holders have identified several “cyberlockers” that feature pirated material for download and
streaming. Rights holders have had positive outcomes in a number of instances when they have gone to
court, although websites often reappear under a new name. Also commendable is the Czech government
interagency IPR task force, led by the Ministry of Industry and Trade, which coordinates policy and
oversees implementation of laws involving IPR.

France: The expansion of broadband Internet access, cheap data storage, and the growth of online content
have contributed to digital piracy in France. Copyright stakeholders report the government’s efforts to
reduce online piracy have yielded some successes. Online piracy remains a serious concern, however, and
while civil proceedings in French courts continue to provide the most effective channel for enforcement
against piracy, non-deterrent sentencing in criminal proceedings remains a problem.

Greece: Greece remained on the Watch List in the 2016 Special 301 Report. The United States
acknowledges some improvements in IPR protection and enforcement in Greece, including actions taken
to address piracy over the Internet. However, inadequate IPR protection continues to pose barriers to U.S.
exports and investment. Key issues cited in the 2016 Special 301 Report include widespread copyright
piracy and limited and inconsistent IPR enforcement. The Greek public sector, including the Ministry of
Defense, continues to be a significant consumer of pirated U.S. software. The Ministry of Culture is
currently reviewing a long-anticipated bill on the collective management of intellectual property and online
use of audiovisual works. The proposed legislation includes Internet piracy provisions and would be a
positive step towards laying the groundwork for greater IPR enforcement.

Italy: Italy passed robust regulations to combat online piracy violations in 2014. Italy’s financial police,
the Guardia di Finanza, continue to dedicate resources to identify copyright-infringing content online and

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has partnered with the International Anti-Counterfeiting Coalition to provide officers with training on the
identification and disruption of counterfeit products being produced in or imported into Italy. While
copyright protection is improving, online piracy remains a challenge.

Latvia: Although Latvia has enhanced its legal framework for IPR protection and enforcement, industry
stakeholders report that police and prosecutors lack the resources to effectively investigate and prosecute
cases, and they perceive that Latvian law enforcement has not actively pursued IPR cases in 2016.

Malta: Although stakeholders report that Malta’s civil regime for copyright is generally adequate, they
also report that Malta’s criminal law is insufficient, especially with respect to the deterrence of IPR
infringement. While the relevant provisions of the Maltese Criminal Code are generally viewed as
satisfactory in the context of trademarks and designs, the criminal code provisions governing other
infringement of IPRs remain largely unenforced and should be updated to reflect technological advances.

Poland: Stakeholders continue to identify copyright piracy over the Internet as a significant concern in
Poland. Poland has largely finished updating copyright and related rights laws to EU standards, and a few
additional changes took effect in November 2015. The changes were related to implementation of EU
Directives 2012/28/EU on orphan works and 2006/115/EC on rental rights and lending rights.

Romania: Romania remained on the Watch List in the 2016 Special 301 Report. While some categories
of infringement, such as street sales of counterfeit goods and piracy of optical discs, have continued to
decline in the past years, piracy over the Internet, especially peer-to-peer file sharing, remains a serious
concern. Some of the most notorious pirate file-sharing sites have connections to Romania. Criminal IPR
enforcement remains generally inadequate, with questions arising regarding Romania’s commitments to
resolute enforcement, reflected in reduced cooperation among enforcement authorities, a small number of
enforcement actions, and a lack of meaningful sanctions. Additional resources are also needed to achieve
effective enforcement in Romania, such as increased training of law enforcement and prosecutors.
Organized criminal networks have taken advantage of the widening gap between their ability to use
technology and the ability of law enforcement and prosecutors to discover, investigate, and prosecute cases,
especially when the activities cross national borders. Romania would benefit from developing a new
national strategy for IPR enforcement, to reaffirm its commitment to protecting IPR.

Spain: Spain has been part of a Special 301 Out-of-Cycle Review since 2013, after Spain was removed
from the Watch List in the 2012 Special 301 Report. In 2015, Spain took several positive legislative steps,
including to amend its civil and criminal copyright laws. In December 2015, Spain’s Prosecutor General
also issued a new circular with respect to copyright piracy over the Internet. Concerns remain, however,
with respect to implementation of these amendments, as well as with respect to administrative enforcement
by Spain’s Intellectual Property Commission. The United States will continue to carefully monitor
developments in this area and work closely with Spain to address these issues.

Sweden: Sweden continues to grapple with widespread piracy on the Internet. Government enforcement
efforts have shown positive results, and police and prosecutors are now working more efficiently to
investigate and move cases to prosecution. Meanwhile, consistent with international trends, problems
related to illegal streaming are increasing, resulting in losses for the movie, television, and live sports
telecast industries. Legal sales of music and film have increased dramatically in recent years, however, in
part because of Swedish enforcement efforts against illegal streaming.

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SERVICES BARRIERS

Telecommunications

European Electronic Communications Code

Telecommunications in the EU are currently regulated through five directives and one regulation: the
Framework Directive; the Access Directive; the Authorization Directive; the Universal Service Directive;
the Directive on Privacy and Electronic Communications; and the Regulation on Roaming. Each Member
State has its own independent national regulatory authority (NRA) for the telecommunications sector. The
Body of European Regulators for Electronic Communications (BEREC) consists of the heads of these
independent regulators and provides advice to the Commission regarding measures affecting
telecommunications.

As part of the EU’s DSM strategy, on September 14, 2016, the Commission released a proposal for a
common “European Electronic Communications Code” (the Code) that would update and merge four
existing telecommunications Directives (Framework, Authorization, Access, and Universal Service) into a
single measure that would include rules on network access, spectrum management, communication
services, universal service, and institutional governance. The European Council and Parliament are now
considering whether to amend the Commission’s proposal. The legislation is not expected to be finalized
until late 2017, at the earliest. The Commission asserts that the proposed Code will promote infrastructure
competition, greater investment in high-speed broadband networks, and greater harmonization of spectrum
management across the EU. U.S. suppliers welcomed the Commission’s attempt to reduce market
fragmentation, promote the development and introduction of innovative services, and harmonize spectrum
management.

The proposed Code, however, would, for the first time, apply European telecommunications regulations to
“over the top” (OTT) Internet services, such as voice, messaging, and other communications applications.
Most of the obligations in the Code would apply to “number-based” Internet services that enable
communications with mobiles and landlines. These obligations would address requirements relating to
access to emergency services, duration of contracts, quality of service, number portability, and switching
rules for service bundles. All covered Internet services, including those that do not use public numbering,
would be bound by rules on security and integrity of services that govern their risk management strategies
and their reporting of security incidents to competent authorities. U.S. suppliers have expressed significant
concerns with the proposed expanded scope of EU telecommunications law and have highlighted that
Internet services face low barriers to entry by new competitors, while traditional telecommunications
services providers enjoy high barriers to new entry and little direct competition, thus justifying asymmetric
regulation. In addition, this extension of NRA authority to Internet services raises concerns given that most
traditional telecommunications services suppliers historically serve one or a limited number of EU Member
State markets, whereas most Internet “interpersonal communications services” are available in every
Member State, thereby potentially subjecting them to conflicting NRA jurisdiction.

Termination Rates

One of the main cost components of an international telephone call from the United States to an EU country
is the rate a foreign telecommunications operator charges a U.S. operator to terminate the call on the foreign
operator’s network and deliver the call to a local consumer. The GATS Telecommunications Services
Reference Paper includes disciplines designed to ensure that the charge for terminating a call on a network
of a major supplier (which in most countries is the largest or only fixed‐line telecommunications supplier)
is cost‐oriented. This ensures that a major supplier is not able to gain an unfair competitive advantage from
terminating foreign or competitive carriers’ calls, and also helps to ensure that U.S. carriers can offer

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reasonable and competitive international rates to consumers located in the United States. Termination rates
for both fixed and wireless traffic should be set in relationship to the costs of providing termination, as
would be reflected in a competitive market. Where competition does not discipline the costs of termination
services, governments should ensure that the termination rates charged by its operators are not unreasonably
higher than cost.

In 2016, the United States observed that several suppliers in multiple EU Member States, including Croatia,
the Czech Republic, France, Greece, and Portugal, were charging higher rates for the termination of
international traffic originating outside of the EU, or in some cases outside the European Economic Area
(EEA, which is comprised of the EU plus Iceland, Liechtenstein, and Norway), than for international traffic
between sovereign states within the EU or EEA. In 2016, French operators exempted U.S. traffic from the
higher rates charged to U.S.-originated traffic that began in early 2014, when ARCEP, the French
telecommunications regulator, had permitted French operators to charge reciprocal rates for non-EEA
originated. This year, however, U.S. suppliers expressed concern that, with the exception of France,
suppliers continue to charge high termination rates in the previously cited countries and suppliers in
Bulgaria, Estonia, Hungary, Latvia, Lithuania, Poland, and Slovenia are also engaged in this practice.
Neither the Commission nor BEREC have made efforts to resolve this issue.

These discrepancies in termination rates do not appear to reflect incremental costs for termination of such
traffic. Termination rate increases also disadvantage enterprises in those foreign markets for which foreign
communications is a key part of business (e.g., traders, hotels). The United States remains concerned that
the Commission and EU Member States appear to endorse, explicitly or implicitly, a two-tier approach to
the termination of international traffic. These actions adversely affect the ability of U.S.
telecommunications operators to provide affordable, quality services to U.S. consumers calling Europe and
may raise questions regarding the treatment of U.S. suppliers by certain EU Member States.

Television Broadcasting and Audiovisual Services

Audiovisual Media Services Directive

A legislative proposal amending the 2007 Audiovisual Media Services Directive (AVMSD) (COM/2016/
0287 final) was issued by the Commission on May 25, 2016. This proposal aims to update the 2007
Directive to reflect developments in the audiovisual and video on-demand markets. The 2007 Directive
established minimum content quotas for broadcasting that must be enforced by all Member States. Member
State requirements are permitted to exceed this minimum quota for EU content, and several have done so,
as discussed below. The AVMSD did not set any strict content quotas for on-demand services, but it still
required Member States to ensure that on-demand services encourage production of, and access to, “EU
works.” This could be interpreted to refer to the financial contribution made by such services to the
production and rights acquisition of EU works, or to the prominence of EU works in the catalogues of video
on-demand services.
The 2016 proposal includes provisions that would impose on Internet-based video-on-demand providers,
which already must promote European works under current rules, additional European content
requirements, such as establishing a minimum 20 percent threshold for European content in their catalogs
and giving prominence to European content in their offerings. The proposal also provides Member States
the option of requiring on-demand service providers not based in their territory, but whose targeted audience
is in their territory, to contribute financially to European works, based on revenues generated in that
Member State. The proposal amending the AVMSD is due to be voted in the lead Culture Committee of
the European Parliament on March 22, with a plenary vote likely before the summer break. Meanwhile
trialogue discussions among the Commission, Parliament and Council are expected to begin in late May.

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Satellite and Cable Directive

The 1993 Satellite and Cable Directive (SatCab) governs satellite broadcasting and cable retransmission.
It was enacted to promote cross-border satellite broadcasting of programs and their cable retransmission
from other Member States and to remove obstacles arising from disparities between national copyright
provisions. Under SatCab’s country-of-origin principle, the satellite broadcasting of copyrighted works
requires the authorization of the rights holder, and such rights may only be acquired by agreement.

In 2016, the Commission carried out a review (REFIT) of the 1993 Directive, with the aim of enhancing
cross border access to broadcasting and related online services across the EU. This review was followed
by a Commission proposal for a “Regulation laying down rules on the exercise of copyright and related
rights applicable to certain online transmissions of broadcasting organizations and retransmissions of
television and radio programmes” (Broadcasting Regulation), which is currently going through the
decision-making process in the European Parliament. The proposed Broadcasting Regulation seeks to
extend the country-of-origin principle to online programming, a development strongly opposed by the U.S.
film and commercial television sectors. U.S. studios are particularly concerned that the proposed regulation
would interfere with the ability of rights holders to continue licensing on a country-by-country basis and
tailor audiovisual content for specific cultural audiences at different price points.

Member State Measures

Several Member States maintain measures that hinder the free flow of some programming or film
exhibitions. A summary of some of the more significant restrictive national practices follows.

France: France continues to apply AVMSD in a restrictive manner. France’s implementing legislation,
approved by the Commission in 1992, requires that 60 percent of programming be of EU origin and 40
percent include French-language content. These requirements exceed AVMSD thresholds. Moreover,
these quotas apply to both the regular and prime time programming slots, and the definition of prime time
differs from network to network. The prime time restrictions pose a significant barrier to U.S. programs in
the French market. Internet, cable, and satellite networks are permitted to broadcast as little as 50 percent
EU content (the AVMS Directive minimum) and 30 to 35 percent French-language content, but channels
and services are required to increase their investment in the production of French-language content. In
addition, radio broadcast quotas require that 35 percent of songs on almost all French private and public
radio stations be in French. The quota for radio stations specializing in cultural or language-based
programing is 15 percent. A July 2016 regulation specifies that only if the top ten most-played French
songs on a station account for less than 50 percent of the songs played are they counted towards the quota.
France’s Broadcasting Authority, Conseil supérieur de l’audiovisuel, oversees implementation of the
quotas.

Beyond broadcasting quotas, cinemas must reserve five weeks per quarter for the exhibition of French
feature films. This requirement is reduced to four weeks per quarter for theaters that include a French short
subject film during six weeks of the preceding quarter. Operators of multiplexes may not screen any one
film in such a way as to account for more than 30 percent of the multiplex’s weekly shows. While they are
in theatrical release, feature films may not be shown or advertised on television. France also maintains a
four-month waiting period between the date a movie exits the cinema and the date when it can be shown
on video-on-demand.

Italy: The Italian Broadcasting Law, which implements EU regulations, provides that the majority of
television programming time (excluding sports, news, game shows, and advertisements) be EU-origin
content. Ten percent of transmissions (and 20 percent for state broadcaster RAI) must be reserved for EU
works produced within the past five years.

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Poland: Television broadcasters must devote at least 33 percent of their broadcasting time each quarter for
programming originally produced in the Polish language, except information services, advertisements,
telesales, sports broadcasts, and television quiz shows. Radio broadcasters are obliged to dedicate 33
percent of their broadcasting time each month and 60 percent of broadcasting time between 5:00 a.m. and
midnight, to Polish language programming. Television broadcasters must dedicate more than 50 percent
of their broadcasting time quarterly to programs of EU origin, except information services, advertisements,
telesales, sports broadcasts, and television quiz shows. Television broadcasters must devote at least 10
percent of their broadcasting time to programs by EU independent producers, and compliance is reviewed
every three months. On-demand audiovisual media services providers also must promote content of EU
origin, especially content originally produced in Polish, and dedicate at least 20 percent of their catalog to
EU content.

Portugal: Television broadcasters must dedicate at least 50 percent of air time to programming originally
produced in the Portuguese language, with at least half of this produced in Portugal. Music radio
broadcasters must dedicate between 25 to 40 percent of programming time to music produced in the
Portuguese language or in traditional Portuguese genres, with at least 60 percent of this produced by citizens
of the EU.

Slovakia: As of April 2016, private radio stations were required to allocate at least 20 percent of airtime to
Slovak music, rising to 25 percent in 2017. State-run radio must allocate at least 35 percent by 2017. In
addition, at least one fifth of the Slovak songs must have been recorded in the past five years.

Spain: For every three days that a film from a non-EU country is screened, one EU film must be shown.
This ratio is reduced to four days to one if the cinema screens a film in an official language of Spain other
than Castilian and keeps showing the film in that language throughout the day. In addition, broadcasters
and providers of other audiovisual media services annually must invest five percent of their revenues in the
production of EU and Spanish films and audiovisual programs.

In 2010, the Autonomous Community of Catalonia passed legislation requiring distributors to include the
regional Catalan language in any print of any movie released in Catalonia that had been dubbed or subtitled
in Spanish, but not any film in Spanish. The law also requires exhibitors to exhibit such movies in Catalan
on 50 percent of the screens on which they are showing. In 2012, the European Commission ruled that the
law discriminated against European films and must be amended. To date, the law has not been amended to
comply with EU law and the issue has not been brought before the CJEU.

In 2010, the Spanish government revised its audiovisual law and imposed restrictions on non-EU ownership
(limited to no more than 25 percent share) and leasing of audiovisual licenses, and U.S. investors report
that they have been negatively impacted. Following the 2010 amendment, several U.S. investors signed
agreements with Spanish audiovisual license holders to provide content for free-to-air television channels.
These investments were disrupted by a 2012 decision by the Spanish Supreme Court, which annulled the
nine digital terrestrial television (DTT) broadcasting licenses of these Spanish firms on the basis that the
government had not followed the proper public tender process in allocating the licenses in 2010. In 2014,
all of the annulled DTT channels ceased broadcasting, and in 2015 the Spanish government awarded six
new licenses through a public tender process. U.S. investors were unable to participate directly in this
tender process due to restrictions on foreign ownership. The United States continues to engage on these
issues with the Spanish government.

Video-on-demand services in Spain must reserve 30 percent of their catalogs for European works (half of
these in an official language of Spain) and contribute five percent of their turnover to the funding of
audiovisual content.

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Legal Services

Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Greece, Hungary, Latvia, Lithuania, Malta,
and Slovakia require EU or EEA nationality for full admission to the bar, which is necessary for the practice
of EU and Member State law. In many cases, non-EU lawyers holding authorization to practice law in one
Member State face more burdensome procedures to obtain authorization in another Member State than
would a similarly situated lawyer holding EU citizenship.

Member State Measures

Bulgaria: The Bulgarian Bar Act allows law firms registered in the EU to practice in Bulgaria under their
original name after they register with the local bar association. However, at least one of the partners has to
be registered both in Bulgaria and in another Member State if the local partnership is to use an
internationally recognized name.

Czech Republic: Unlike EU-based law firms, U.S. law firms cannot establish Czech branches to practice
law (i.e., operate directly through their home legal entities). However, attorneys from U.S. law firms
admitted as foreign lawyers may establish a business entity to engage in the practice of law under the U.S.
company name.

Hungary: U.S. lawyers may provide legal services only under a “cooperation agreement” in partnership
with a Hungarian law firm, and may only provide information to their clients on U.S. or international law.

Accounting and Auditing Services

Member State Measures

Czech Republic: The Czech Republic requires that at least a majority of the voting rights in an audit firm
must be held by auditors licensed in the EU or by a firm licensed to perform statutory audits in a Member
State.

Slovakia: Slovakia requires that companies providing auditing services be registered in a Member State
and maintains an equity cap requiring that 60 percent of the voting rights of these companies be held by EU
nationals.

Retailing

Member State Measures

EU nationality is required for operation of a pharmacy in Austria, France, Germany, Greece, and Hungary.

Hungary: In April 2016, Hungary repealed the mandatory Sunday closure of large retail shops, which was
introduced in May 2015. A 2015 law requires that food retail chains with annual revenue of $180 million
or greater shut down if they incur losses for two consecutive years. While the EU required Hungary to
repeal a sanitation tax levied only on large, multinational supermarkets, government officials have stated
they would find new ways to make foreign retailers pay more tax.

Romania: In July 2016, Romania passed a law requiring large supermarkets to source from the local supply
chain at least 51 percent of the total volume of their merchandise in meat, eggs, fruits, vegetables, honey,
dairy products, and baked goods. The law vaguely defined the local supply chain and it is intended to favor
Romanian products. This law applies to high-volume supermarkets with more than €2 million in annual

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sales, affecting all major chains. The law also bans food retailers from charging suppliers for any services,
including on-site marketing services, thereby preventing producers from influencing how stores market or
display their products and injecting greater unpredictability into the business environment. The government
has not yet implemented the 51 percent provision by passing the required secondary legislation, although it
announced its intention to do so after the European Commission notified Romania on February 15, 2017 of
possible infringement proceedings.

EU Enlargement

After each of the three most recent rounds of EU enlargement, the EU has submitted notifications to WTO
Members concerning the modification of existing commitments under the GATS by the newly acceded EU
Member States. In accordance with GATS Article XXI, the EU was required to enter into negotiations with
any other WTO Member that indicated that it was affected by the modification of existing commitments.
In connection with the largest of these rounds of enlargement (the expansion to 25 members in 2004), the
United States and the EU agreed to a compensation package on August 7, 2006. To date, however, the
Commission has failed to secure the approval of all Member States, which is necessary to implement the
agreement. The United States will continue to monitor this process to ensure the agreement is implemented
before the EU’s modifications enter into effect.

INVESTMENT BARRIERS

With few exceptions, EU law generally requires that any company established under the laws of one
Member State must receive national treatment in all other Member States, regardless of the company’s
ultimate ownership. Laws and regulations pertaining to the initial entry of foreign investors, however, are
largely still the purview of individual Member States. As discussed below, the policies and practices of the
EU and its Member States can have a significant impact on U.S. investment.

Member State Measures

Bulgaria: Weak corporate governance remains a problem in Bulgaria. While legislative protection for
minority shareholders has improved through insolvency rules in Bulgaria’s Commercial Code and changes
to its Law on Public Offering of Securities, enforcement of these statutory provisions remains
inadequate. Inadequate judicial mechanisms for commercial dispute resolution and a perception that
foreign investors are unlikely to receive impartial treatment in Bulgaria’s judicial system create further
barriers to investment.

In April 2016, after nearly two years of negotiations, the Bulgarian government paid in full arrears it owed
to two U.S. thermal power companies. The companies are, however, awaiting a decision from the EU as
to whether the tariff rates on power generation negotiated with the government constitute illegal state aid.

Croatia: U.S. companies doing business in Croatia complain that their operations are negatively affected
by frequent, unexpected legislative changes. Investors reportedly find it difficult to make sound, long-term
business plans due to the unpredictable legislative environment.

Although Croatia has a law that calls for mandatory regulatory impact assessments of proposed legislation,
the law is not strictly observed. In 2014, for example, less than 10 percent of the laws enacted in 2014 were
subject to proper regulatory impact assessments. The government has presented no clear commitment or
timeline to increase meaningfully its conducting of regulatory impact assessments.

Cyprus: Cypriot law imposes significant restrictions on the foreign ownership of real property and
construction-related businesses. Non-EU residents may purchase no more than two independent housing

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units (apartments or houses), or one housing unit and a small shop or office. Exceptions are available for
projects requiring larger plots of land, but are difficult to obtain and rarely granted. Separately, only EU
citizens have the right to register as construction contractors in Cyprus, and non-EU investors are not
allowed to own a majority stake in a local construction company. Non-EU residents or legal entities may
bid on specific construction projects, but only after obtaining a special license from the Cypriot Council of
Ministers.

France: Pursuant to a November 2004 law that streamlined the French Monetary and Financial Code, the
State Council has designated a number of “sensitive” sectors in which prior approval is required before
foreign acquisition of a controlling equity stake is permitted. A December 2005 government decree (Decree
2005-1739) lists 11 business sectors that the French government monitors. The government may restrict
foreign ownership in these sectors through a system of “prior authorizations” in which the Ministry of the
Economy and Finance must in advance authorize investment activity related to foreign ownership in the
sectors. In May 2014, the government issued decree 2014-479, which expanded the list of sectors to include
energy, water, health, transportation, and telecommunications, as well as any installation, facility, or
structure deemed to be “vital” within the meaning of the Defense Code.

The French government has expressed concern over the foreign acquisition of “strategic” companies whose
stock prices fell steeply in the wake of the financial crisis. In late 2008, France established a strategic
investment fund, the Fonds Strategique d’Investissement, to assume a stake in companies with “key
technologies.” The fund is majority-owned and run as a “strategic priority” by the Caisse des Dépôts et
Consignations (CDC), a state-sponsored financial institution and France’s largest institutional
investor. The French government has asked the CDC to work as a domestic buffer against foreign takeovers
by increasing its stake in French companies. The government also is able to become directly involved in
mergers and acquisitions by using its “golden share” in state-owned firms to protect perceived national
interests.

Greece: All purchases of land in border areas and on certain islands require approval from the Ministry of
Defense. The definition of “border area” is broader for non-EU purchasers of land than for purchasers from
within the EU, and obtaining approval for such purchases is more burdensome. Greek authorities consider
local content and export performance criteria when evaluating applications for tax and investment
incentives, although such criteria are not prerequisites for approving investments.

Hungary: The Hungarian government has passed hundreds of laws since 2010, including many “cardinal”
laws that require a two-thirds majority to repeal. Investors have observed that these laws are frequently
enacted with little debate and no consultation with potentially affected businesses and other stakeholders,
and have expressed concern about the impact that these legislative changes have had on the predictability
of Hungary’s investment climate.

Recent “crisis taxes” have targeted foreign-owned firms in a disparate way, either by applying to sectors
dominated by foreign-owned firms, or by taxing larger (primarily foreign-owned) firms at a far higher rate
than smaller firms. In 2016, the EU determined that Hungary’s advertising and tobacco taxes, as well as a
food chain inspection fee, violate EU rules by discriminating against larger companies. Hungary suspended
the tobacco tax and food inspection fee as a result of this ruling, but has maintained the advertising tax.
The Hungarian government has declared that it will continue to seek ways to extract revenues from foreign
multinationals.

Members of the business community have expressed concern with the “strategic agreements” that the
government has signed with over 70 major companies operating in Hungary. The agreements, which are
not made public, often do not contain specific obligations, but are non-binding commitments to invest in
Hungary and in turn the government will provide access to high-level officials. The concern is that these

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agreements could be a hidden forum for lobbying, allowing the government to give preferential treatment
to favored companies.

Italy: Some U.S. companies claim to have been targeted adversely by the Italian Revenue Authority by
virtue of the fact that they engage in international operations. Tax rules change frequently and are
interpreted inconsistently. Companies report long delays in receiving VAT refunds to which they are
legally entitled. Tax disputes are resolved slowly, and initial findings are frequently reversed, which
reduces certainty and increases compliance costs.

Latvia: The judicial and insolvency systems in Latvia present significant challenges to investors.
Insolvency proceedings can take several years to resolve, and there have been reports of large-scale abuse
by both insolvency administrators and bad-faith creditors who have manipulated the proceedings to seize
control of assets and companies and to extract unwarranted settlements and fees. In a recent study, 76.8
percent of business owners said they believe insolvency proceedings in Latvia are not transparent and fair,
and 74.3 percent said they had encountered insolvency abuse. Similarly, U.S. stakeholders have voiced
concerns about the length of civil cases, while the nature and opacity of judicial rulings have led some
investors to question the fairness and impartiality of some judges.

Poland: Financial service institutions and retailers have expressed concerns over new tax measures, such
as a new bank tax on assets, increased contributions to the Bank Guarantee Fund, and the potential costs of
converting Swiss Franc-denominated loans into the local Polish currency, the złoty. The bank tax on assets,
which entered into force in early 2016, could cost the industry €1 billion this year – more than a third of
their aggregate net profits in 2015.

Romania: Uncertainty and a lack of predictability in legal and regulatory systems pose a continuing
impediment to foreign investment in Romania. Many companies report experiencing long delays in
receiving VAT refunds to which they are legally entitled. Deadlines stipulated by law for the processing
and payment of refunds often are not respected.

Slovenia: Weak corporate governance and a lack of transparency, particularly with respect to state-owned
enterprises, continue to present significant challenges in Slovenia. Potential U.S. investors have reported
that opaque decision-making processes in the government’s privatization program have discouraged
investment.

GOVERNMENT PROCUREMENT

Government procurement in the European Union is governed by EU public procurement directives. In


2014, the European Parliament approved revised directives addressing general public procurement and
procurement in the utilities sector. The Parliament also approved a new directive on concessions contracts.
Member States were required to transpose the new directives into national legislation by April 2016.

The directive on procurement procedures in the utilities sector covers purchases in the water, transportation,
energy, and postal sectors. This directive requires open and competitive bidding procedures, but it permits
Member States to reject bids with less than 50 percent EU content for tenders that are not covered by an
international or reciprocal bilateral agreement. The EU content requirement applies to foreign suppliers of
goods and services in water (the production, transport, and distribution of drinking water); energy (gas and
heat); urban transport (urban rail, automated systems, trams, buses, etc.); and postal services. Subsidiaries
of U.S. companies may bid on all public procurement contracts covered by the EU Directives.

The EU is a member of the WTO Agreement on Government Procurement (GPA). U.S.-based companies
are allowed to bid on public tenders covered by the GPA.

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The EU’s lack of country of origin data for winning bids makes it difficult to assess the level of U.S. and
non-EU participation. Nevertheless, a 2011 report commissioned by the EU noted that only 1.6 percent of
total Member State procurement contracts were awarded to firms operating and bidding from another
Member State or a non-EU country, demonstrating that in practice the value of direct cross-border
procurement awards even among Member States was very small. The same study said that U.S. firms not
established in the EU received just 0.016 percent of total EU direct cross-border procurement awards.

Member State Measures

Lack of transparency in certain Member State public procurement processes continues to be an almost
universally cited barrier to the participation of U.S. firms. U.S. firms seeking to participate in procurements
in Bulgaria, the Czech Republic, France, Greece, Hungary, Italy, Lithuania, Romania, Slovakia, and
Slovenia have all proactively voiced concerns over a lack of transparency, including with respect to overly-
narrow definition of tenders, language and documentation barriers, and implicit biases toward local vendors
and state-owned enterprises. The Commission’s 2014 EU Anti-Corruption Report asserts that Member
State public procurement is one of the areas most vulnerable to corruption.15 Additional Member State-
specific trade barriers to U.S. participation in public procurement processes are cited below.

Bulgaria: Stakeholders report that the public procurement process in Bulgaria is frequently discriminatory
and unfair. There are persistent complaints that tenders are too narrowly defined and are tailored to a
specific company. For example, a U.S. company seeking to sell nuclear fuel to Bulgaria’s state-owned
Kozloduy Nuclear Power Plant (KNPP) is facing substantial barriers imposed by KNPP and by Bulgaria’s
nuclear regulator. In order to participate in a 2018 procurement of nuclear fuel, the U.S. supplier has to be
able to test its fuel in a KNPP reactor. To date, the U.S. company has been denied permission to carry out
the necessary tests. In contrast, in 2016 a Russian state-owned company, and the incumbent supplier to
KNPP, was permitted to load a new nuclear fuel type prior to completing comparable tests. Without
permission to test its fuel, the U.S. supplier will be unable to compete in the 2018 procurement.

France: France continues to maintain ownership shares in several major defense contractors (10.94 percent
of Airbus, formerly EADS, shares; 14 percent of Safran shares and 21.9 percent of its voting rights; and
25.97 percent of Thalès shares). It is generally difficult for non-EU firms to participate in French defense
procurement, and even when the competition is among EU suppliers, French companies are often selected
as prime contractors.

Greece: U.S. firms have complained that Greece often requires suppliers to source services and production
locally or partner with Greek manufacturers as a condition for the awarding of some defense contracts.
Additional complaints center on onerous certification and documentation requirements on U.S. firms.

Hungary: Hungary appears to favor state-owned enterprises and companies close to the government over
other participants in public tenders. A 2015 Transparency International study on EU-financed public
procurement concluded that corruption is a significant problem for the country’s public procurement
system. A December 2016 amendment of Hungary’s new public procurement regulations, enacted in
November 2015, will permit the Hungarian government to exempt companies using more than HUF 40
million ($140,000) of EU or Hungarian government funding from the public procurement requirement if
the tendering “would not serve the most efficient use of public funds.” Non-governmental organization

15
Report from the Commission to the Council and the European Parliament, EU Anti-Corruption Report, February
3, 2014. https://ec.europa.eu/home-affairs/sites/homeaffairs/files/e-library/documents/policies/organized-crime-and-
human-trafficking/corruption/docs/acr_2014_en.pdf

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that focus on issues of transparency believe this requirement provides Hungary with wide discretion to
decide which procurements would fall under its public procurement rules.

Italy: Although laws implemented in Italy following a major 1992 scandal reduced corruption somewhat,
U.S. firms continue to cite widespread corruption in procurements, especially at the local level. In 2012,
the Italian parliament approved an anti-corruption bill that introduced greater transparency and more
stringent procedures to the public procurement process. Nonetheless, corruption in public administration
remains a challenge. According to the Italian Court of Audit, corruption costs the Italian economy
approximately 60 billion Euros each year – the equivalent of four percent of GDP.

Poland: U.S. firms report disappointment with the speed of change in Poland’s public procurement
regulations. They note that “lowest cost” remains the main criterion Polish officials use to award contracts,
often overlooking other important factors in bid evaluation, such as quality, company reputation, and prior
experience in product and service delivery. Defense companies complain of the use of a classification level
in procurement documents that does not have a U.S. equivalent, and the requirement that foreign company
management submit Polish criminal background checks not available outside of Poland, as common issues
with military tenders.

Slovenia: U.S. firms report short timeframes for bid preparation, tendering documentation that is difficult
to understand, and opacity in the bid evaluation process as major impediments. Slovenia’s quasi-judicial
National Revision Commission (NRC), which reviews all disputed public procurement cases, has received
multiple complaints. The NRC has the authority to review, amend, and cancel tenders, and its decisions
are not subject to judicial appeal. In the instances where U.S. companies alleged improprieties in the
procurement process, Slovenian authorities directed them to the NRC, which is not required to justify its
decisions.

SUBSIDIES

Various financial transactions and equity arrangements throughout the EU raise questions as to the role of
state funding in supporting or subsidizing private or quasi-private organizations, including in the civil
aviation sector.

Beginning in June 2014, the Commission announced that certain transfer pricing rulings given by Member
States to particular taxpayers may have violated the EU’s restriction on state aid. The EU initiated a series
of state aid investigations primarily involving U.S.-headquartered companies. As the U.S. Department of
the Treasury explained in a white paper dated August 24, 2016, the United States remains deeply concerned
with the Commission’s approach in these investigations. This approach is new, and departs from prior EU
case law and Commission decisions. The Commission’s actions also undermine the international consensus
on transfer pricing standards, call into question the ability of Member States to honor their bilateral tax
treaties, and undermine the progress made under the OECD/G20 Base Erosion and Profit Shifting project.

Government Support for Airbus

Over many years, Belgium, France, Germany, Spain, and the United Kingdom have provided subsidies to
their Airbus-affiliated companies to aid in the development, production, and marketing of Airbus’s large
civil aircraft. These governments have financed between 33 and 100 percent of the development costs
(launch aid) of all Airbus aircraft models and have provided other forms of support, including equity
infusions, debt forgiveness, debt rollovers, marketing assistance, and research and development funding, in
addition to political and economic pressure on purchasing governments.

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The EU’s aeronautics research programs are driven significantly by a policy intended to enhance the
international competitiveness of the EU civil aeronautics industry. Member State governments have spent
hundreds of millions of euros to create infrastructure for Airbus programs, including €751 million spent by
the city of Hamburg to drain the wetlands that Airbus is currently using as an assembly site for the A380
“superjumbo” aircraft. French authorities also spent €182 million to create the AeroConstellation site,
which contains additional facilities for the A380. After having given the Airbus A380 more than $5 billion
in subsidies, the relevant Member State governments have also provided launch aid in comparable amounts
for the new Airbus A350 XWB aircraft.

Airbus SAS, the successor to the original Airbus consortium, is owned by the Airbus Group, now the second
largest aerospace company in the world. This entity was previously known as the European Aeronautic,
Defense, and Space Company (EADS). The name change accompanied a reorganization of the company’s
ownership structure, resulting in France and Germany each owning up to 11 percent of the shares, Spain
approximately 4 percent, and the remaining approximately 72 percent of shares trading on open
markets. The reorganization also ended these governments’ rights to veto strategic decisions and to appoint
directors to the Airbus board. Instead, the governments only have the right to veto board members
appointed by the company. The Airbus Group accounted for more than half of worldwide deliveries of new
large civil aircraft over the last few years and is a mature company that should face the same commercial
risks as its global competitors.

On May 31, 2005, the United States requested establishment of a WTO panel to address its concern that
Member State subsidies were inconsistent with the WTO Agreement on Subsidies and Countervailing
Measures. The WTO established the panel on July 20, 2005. In 2010, the dispute settlement panel found
in favor of the United States on the central claims, and the Appellate Body upheld the finding of WTO
inconsistency in 2011. On December 1, 2011, the EU submitted a notification to the WTO asserting that it
had taken appropriate steps to bring its measures into conformity with its WTO obligations. On December
9, 2011, the United States requested consultations with the EU to address its concern that the EU had failed
to bring its Airbus subsidies into conformity with WTO rules. The WTO compliance panel issued its report
on September 22, 2016, finding that the EU Member States had not withdrawn the past subsidies conferred
by $17 billion in past launch aid to Airbus, and that the launch aid of nearly $5 billion for the A350 XWB
was also contrary to WTO rules.

Government Support for Airbus Suppliers

Member State Measures

Belgium: The Belgian federal government coordinates with Belgium’s three regional governments on the
subsidies for Belgian manufacturers that supply parts to Airbus. Belgium currently has a €195 million
support program for the A380 superjumbo and a €175 million support program for the A350
XWB. Belgium has always claimed that these were refundable advances, structured in accordance with the
1992 bilateral agreement, and that they covered nonrecurring costs. In 2006 and again in 2009, the
Commission initially disputed that view, but later acquiesced. Industrial research or experimental
development projects linked to the A350 XWB and A380 were cited as examples of projects that could
benefit from the program. However, in 2014, Eurostat, the Commission’s statistical unit, notified the
Belgian government that these amounts should not be considered advances but subsidies, because they were
never reimbursed. Beginning in 2016, Belgian federal and regional governments were supposed to include
the Airbus subsidies as such in their budgets, which they have never done before. Close scrutiny of the
Flemish and Walloon regional 2016 budgets shows no such reimbursements. For the A350 XWB and A380
programs, the price distortion coming from Belgian subcontractors is estimated to be a minimum of €370
million. For the A400M program, the Belgian federal government agreed in 2016 on a €45 million grant
for the 2017-2020 period.

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France: In addition to the seed investment that the French government provided for the development of
the A380 and A350 XWB aircraft, France provides assistance in the form of reimbursable advances for the
development by French manufacturers of products such as airplanes, aircraft engines, helicopters, and
onboard equipment. In February 2013, the government confirmed €1.4 billion in reimbursable advances
for the A350 over the period 2009-2017 and a similar scheme for the helicopter X6 to be built by
Eurocopter. At the same time, the government announced the implementation of tax and financial
assistance for airline companies to restore their competitiveness. The government’s 2015 budget included
€136 million in reimbursable advances, which grew to €145 million in the 2016 budget. French
appropriations for new programs included €82.8 million in support of research and development in the civil
aviation sector in 2015. In 2016, this support decreased by 10.2 percent to €74.3 million.

In July 2008, Airbus, the parastatal Caisse des Dépôts et Consignations, and the Safran Group announced
the launch of the Aerofund II equity fund, capitalized with €75 million destined for the French aeronautical
sector. The equity fund’s objective is to support the development of small and medium sized subcontractors
that supply the aeronautical sector.

Germany: In March 2015, the German Ministry of Economic Affairs and Energy announced the issuance
of €623 million in loans to Airbus for the new A350 XWB wide-body jet. The loan runs until 2031 and
covers deliveries of 1,500 airplanes. Negotiations between Airbus and the German government on this
second tranche of a €1.1 billion loan package to Airbus had broken down in 2013 amid differences between
the company and the government over guaranteed work and jobs. The German government had paid the
first tranche of the loan package of €500 million at the end of 2010. In addition to the A350 loan package,
Airbus continues to receive funds from the 2012 to 2015 aeronautics research program for a number of
projects. In their 2013 coalition agreement, the German government pledged further support for the
aeronautics program.

Spain: On October 23, 2015, Spain’s government authorized the Ministry of Industry, Energy and Tourism
to grant ALESTIS Aerospace aid amounting to €19 million for its participation in the development program
of the Airbus A350 XWB. Aid corresponds to the schedule for 2013, which was not paid initially because
the company was bankrupt at that time. Measures taken in connection with ALESTIS ensure the successful
outcome of its participation in the A350 XWB program, which is considered strategic for the aviation
industry in Spain. In 2015, the industry had a turnover of €9.7 billion and directly employed approximately
54,400 people.

In the case of Airbus commercial programs, ALESTIS supplies parts and components for the A380, A330,
A320, and A350 XWB aircraft, among others. Regarding Airbus military programs, ALESTIS supplies
parts and components for the CN235/C295 and A400M. It is also a supplier for Embraer and
Boeing. Headquartered in Seville, ALESTIS has seven production facilities (six in Spain and one in Brazil)
and employs approximately 1,600 people.

CUSTOMS ADMINISTRATION

Notwithstanding the existence of customs legislation that governs all Member States, the EU does not
administer its laws through a single customs administration. Rather, there is a separate agency responsible
for the administration of EU customs law in each of the 28 Member States. Institutions or procedures are
not currently in place to ensure that EU rules and decisions on classification, valuation, origin, and customs
procedures are applied uniformly throughout the Member States. (The Binding Tariff Information program
provided for by EU-level law, but administered at the Member State level, does provide for advance rulings
on tariff classification and country of origin.) EU rules do not require the customs agency in one Member

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State to follow the decisions of the customs agency in another Member State with respect to materially
identical issues.

In some cases, where the customs agency of a Member State administers EU law differently, or disagrees
with the Binding Tariff Information issued by another Member State, the matter may be referred to the
Customs Code Committee (CCC). The CCC consists of Member State representatives and is chaired by a
Commission representative. Although a stated goal for the CCC is to help reconcile differences among
Member States and thereby help to achieve uniformity of administration, in practice its success in this
regard has been limited. The CCC and other EU-level institutions do not provide transparency in decision-
making or opportunities for participation by traders, which might make them more effective tools for
achieving the uniform administration and application of EU customs law.

In addition, the EU lacks tribunals or procedures for the prompt review and EU-wide correction of
administrative actions relating to customs matters. Instead, review is provided in the tribunals of each
Member State; the rules regarding these reviews vary from Member State to Member State. A trader
encountering differing treatment in multiple Member States must bring a separate appeal in each Member
State whose agency rendered an adverse decision.

Ultimately, a question of interpretation of EU law may be referred to the CJEU. Although the judgments
of the CJEU apply throughout the EU, referral of a question to the CJEU is generally discretionary, may
take many years, and may not afford sufficient redress. Thus obtaining corrections with EU-wide effect
for administrative actions relating to customs matters is frequently cumbersome and time-consuming. The
United States has raised concerns regarding the uniform administration of EU customs law with the EU in
various forums, including in the WTO DSB.

The Commission has sought to modernize and simplify customs rules and processes. The Union Customs
Code (UCC), adopted by the Commission in 2013, entered into force in 2016. While the UCC contains a
number of procedural changes, the key element of a harmonized information technology infrastructure has
yet to be completed; Member States continue to use different data templates. Full implementation of
harmonized customs systems is not expected to be complete before the end of 2020.

The Commission has published delegated and implementing acts on the procedural changes set forth in the
UCC. These include Delegated Regulation (EU) 2015/2446, Delegated Regulation (EU) 2016/341, and
Implementing Regulation (EU) 2015/2447. In April 2016, the Commission published another
implementing decision (2016/578) on the work program relating to the development and deployment of the
UCC’s electronic systems.

The United States will continue to monitor the UCC implementation process closely, focusing on its impact
on the consistency of customs treatment under EU customs law.

BARRIERS TO DIGITAL TRADE

In 2015, the European Commission issued a communication launching an EU Digital Single Market (DSM)
strategy to eliminate intra-EU digital trade barriers. In 2016, the Commission launched a number of DSM
initiatives and continued work on existing initiatives (see section above on intellectual property). The
United States supports the EU’s goal of achieving a Digital Single Market insofar as it expands transatlantic
digital trade and does not create new barriers for non-EU companies. As the EU continues its work on the
DSM, the United States has encouraged the Commission to ensure predictable and consistent market
conditions, which will support growth in transatlantic trade and investment. The effects of the proposed
EU rules on innovative services will be of particular interest to the United States. The well-intentioned
goal of creating a harmonized digital market in Europe, if implemented through flawed regulation, could

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seriously undermine transatlantic trade and investment, stifle innovation, and undermine the Commission’s
own efforts to promote a more robust, EU-wide digital economy.

Data Localization

Data Transfer Consultation

On January 10, 2017, the Commission released a Staff Working Paper on the free flow of data and on
emerging issues of the European data economy and opened a consultation on these issues. The
Commission’s stated aim is to foster an efficient, competitive single market for data services, including
cloud-based services, and to identify relevant legal, economic, and regulatory challenges. The consultation
requests information on several issues, including whether and how local or national data localization
restrictions inhibit the free flow of data in Europe, and on issues relating to data portability (the ability of a
user to transfer his or her data between different suppliers). In the Staff Working Paper, the Commission
notes that an analysis of a sample of 50 data localization restrictions in 21 EU Member States found that
most of the restrictions applied across multiple sectors and often to commercial data, including accounting
documents, tax records, invoices, and other company documents. The Staff Working Paper also noted that
“the level of security of data in electronic format does not depend on its storage location, but rather on the
security of the IT infrastructure and strength of the encryption techniques used. Ways to achieve secure
data storage or processing include removing obstacles to keep data in larger state-of-the art data centers,
which are much less vulnerable to attacks, and enabling cross-border cooperation, i.e. one data center being
the back-up of another located in a different Member State.” The United States is encouraged by the
Commission efforts to identify and potentially address data localization barriers in the EU and in Member
States, as these barriers affect U.S. suppliers based in particular Member States. The United States also
strongly encourages the EU to examine barriers not only within the EU, but also between the EU and the
rest of the world.

General Data Protection Regulation

In April 2016, the EU enacted the General Data Protection Regulation (GDPR), which will take effect in
May 2018, replacing the 1995 Data Protection Directive (DPD) that is currently in force. Unlike the DPD,
which was implemented through EU Member State national law, the GDPR will apply directly to all EU
Member States, thereby reducing current regulatory fragmentation and potentially reducing administrative
burdens for U.S. stakeholders. The new regulation is more complex than its predecessor and includes
several elements with a potentially significant impact on the interests of U.S. companies. These elements
include joint liability obligations, a data protection officer requirement, data portability, data breach
notification, parental consent requirements, and the “right to be forgotten.” The Commission and Member
State Data Protection Authorities (DPAs) are expected to issue a number of implementing measures during
2017, and the United States will monitor these developments closely.

The GDPR will create a new European Data Protection Board. The Data Protection Board will be tasked
with minimizing disparities in approach to implementation and enforcement between individual DPAs in
Member States, and it will be entrusted to resolve disputes between DPAs. The GDPR includes provisions
intended to minimize the bureaucratic hurdles of dealing with DPAs in multiple EU Member States by
allowing EU residents to file complaints with the DPA in their home country and to allow companies to
deal only with the DPA in the Member State where the company has its primary establishment. While U.S.
companies welcomed the goals of this initiative, some have expressed disappointment that the proposed
mechanism may be too complex and cumbersome, and may still leave too much room for DPAs to take
divergent approaches in different Member States.

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Under the GDPR, the Commission can impose fines up to four percent of annual global revenue on firms
that breach the new EU data protection rules. For multinational corporations, such fines could amount to
billions of dollars. The GDPR also introduces joint liability for controllers (the company that controls the
personal data) and processors (generally contractors hired by the controller to provide services using the
data). Under the DPD, only the controller was liable for data breaches. Companies are concerned that joint
liability would require them to monitor other companies’ data protection practices, which would increase
administrative costs and burdens. Such due diligence requirements could require controllers and processors
to pass more personal data back and forth, thereby increasing potential vulnerabilities to unauthorized
disclosure.

The GDPR will also require companies to appoint a data protection officer if they process sensitive data on
a large scale. The data protection officer would also be responsible for notifying the relevant DPA of
serious data breaches as soon as possible. Although there is an exception in the GDPR for many small- and
medium-sized businesses, this requirement will impact a large number of companies operating in the EU.
The GDPR further creates a new data portability right for individuals to move their personal data from one
service provider to another. Companies have expressed concerns regarding the cost and technical feasibility
of this provision.

The GDPR requires data controllers to obtain parental consent to process the personal data of minors aged
16 years or younger, but allows Member States the flexibility to lower the age for this requirement to 13
years. (In the United States, the Children’s Online Privacy Protection Act imposes a similar requirement
for minors aged 13 years or younger.) U.S. companies have expressed concerns that different Member
States will impose different age requirements, increasing administrative burdens in providing services
across the EU. In addition, raising the age requirement to 16 years will force them to interrupt or curtail
service to a large and active segment of their customer base.

Right To Be Forgotten

The GDPR codifies the 2014 decision of the CJEU that imposed a right for EU citizens to demand that
search engines remove information that is inaccurate, inadequate, irrelevant, or excessive for the purposes
of data processing (“right to be forgotten”). Companies have continued to express concern over the “right
to be forgotten” and its potential to conflict with free speech and to restrict access to information of
legitimate public interest.

In the two years since the CJEU ruling was issued, a lack of consistent guidance has raised concerns for
companies, particularly with regards to the possible extraterritorial application of the ruling by EU Member
State DPAs. In some cases, search engines were ordered not to link to news stories about the “right to be
forgotten” ruling, since those stories may reference individuals who had petitioned to remove information
under the “right to be forgotten.” In other cases, notably involving the French DPA (CNIL), search engines
have been directed to remove information even from services not aimed at an EU audience. CNIL ordered
one U.S. search supplier to remove information under a “right to be forgotten” matter from all its domains
on a worldwide basis. The CNIL matter is on appeal to the State Council, France’s highest administrative
court. If upheld, France and presumably other EU Member State DPAs would maintain that they have the
authority to restrict what non-EU businesses and individuals would be able to access on the Internet. This
would set a worrisome precedent for governments to exert extraterritorial application of their domestic law
on the Internet and would create significant market uncertainty for businesses worldwide.

The “right to be forgotten” provision in the GDPR will apply not only to search engines but to all data
controllers. The GDPR requires data controllers to erase personal data “without undue delay” if the data is
no longer needed, the data subject objects, or the data processing was unlawful. Under the CJEU ruling,
search engines have already fielded hundreds of thousands of requests from individuals. U.S. companies

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have expressed concern that the cost to respond to all requests concerning the “right to be forgotten” is
administratively burdensome, particularly for small and medium sized companies.

Electronic Privacy Regulation

On January 10, 2017, the Commission proposed a new Regulation on Privacy and Electronic
Communications, which would replace the e-Privacy Directive of 2002. The new regulation would enter
into force in May 2018, when the GDPR is also scheduled to take effect. The Commission has stated that
the proposed Regulation on Privacy and Electronic Communications will align rules for
telecommunications services in the EU with the GDPR and cover business-to-business communication and
communication between individuals. The proposal gives Member State DPAs the authority to enforce its
requirements. While it would remove existing inconsistencies between Member State rules, it would also
expand regulatory coverage intended for traditional telecommunications services providers to Internet-
enabled communication and messaging services (i.e., “over-the-top” services), thereby imposing additional
costs on those suppliers.

Privacy Shield

On July 12, 2016, the United States and the EU concluded the EU-U.S. Privacy Shield Framework to
provide U.S.-based organizations a mechanism to comply with EU data protection requirements when
transferring personal data from the EU to the United States in support of transatlantic commerce. On August
1, 2016, the International Trade Administration (ITA) of the U.S. Department of Commerce, which
administers the Framework, began accepting certifications for the Privacy Shield Framework. As of
January 2017, over 1,900 companies had self-certified to the Privacy Shield. Of those, ITA's Privacy Shield
team had finalized more than 1,550 and was reviewing approximately 400 more.

The Privacy Shield Framework supports cross-border trade estimated to be in the hundreds of billions of
dollars. The Framework replaced the U.S.-EU Safe Harbor Framework of 2000, following an October 2015
CJEU ruling striking down the Commission decision that found Safe Harbor adequate under the EU’s 1995
Data Privacy Directive. While joining the Privacy Shield Framework is voluntary, once an eligible
organization makes the public commitment to comply with the Framework’s requirements, the
commitments become enforceable under U.S. law.

Other valid legal mechanisms for moving the personal data of EU citizens to the United States include
binding corporate rules and standard contractual clauses. Although the European Commission and the
United States have both affirmed that the Privacy Shield Framework and other mechanisms for the
movement of the personal data of EU citizens to the United States meet the requirements of EU law, new
legal challenges continue to create uncertainty for companies moving data. As of the end of 2016, two
legal challenges had been filed against the Privacy Shield in the EU’s General Court (lower court). Standard
contractual clauses are also under judicial review in Ireland. Finally, the Privacy Shield Framework also
provides for an annual Commission review of its effectiveness.

Interactive Computer Services

Aggregation Services

Over the past several years, certain EU Member States have adopted measures requiring fees associated
with online news aggregation services. Specifically, the measures require news aggregators, which provide
“snippets” of text from other news sources, to remunerate those other sources. One Member State has also
introduced a similar measure with respect to digital images. These measures are intended to address
publishers’ and visual artists’ challenges in adapting to the digital marketplace, but measures that

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disproportionately affect only one group of foreign-based service suppliers in the digital ecosystem may
exacerbate those challenges to the detriment of all participants in the marketplace. The following measures
and proposals warrant careful monitoring in light of the interests and concerns of stakeholders.

A 2014 amendment to the Spanish intellectual property law (Article 32.2) imposed upon commercial news
aggregators a mandatory compensation regime for the use of fragments of news publications. News
aggregators are required to remunerate publishers via a rights management organization for the use of “non-
significant fragments” of their news publications; there is no means by which a covered news publisher can
waive this right or independently license directly with a news aggregator should it so desire (e.g., so as to
allow readers to find and access such publications). Faced with this measure, at least one leading U.S.
supplier suspended its news aggregation service in the Spanish market. A 2015 economic study conducted
for the Spanish Association of Publishers of Periodical Publications (AEEP) found that the amendment
raised barriers to entry for Spanish publishers, decreased innovative access online for users, and cost
publishers an estimated €10 million per year, with a disproportionate impact on smaller publishers.

A similar 2013 German law (“Leistungsschutzrecht für Presseverleger”) allows uncompensated “short
extracts” of news publications, and permits news publishers and news aggregators to negotiate terms of
individual licenses (including the possibility of opting out of requiring payment under the law).
Implementation of the German law has reportedly been less disruptive than in the case of the Spanish
measure. In fact, at least one leading U.S. supplier obtained a royalty-free license from a German collecting
society for the display of short extracts of news publications. There are continuing stakeholder concerns
regarding the legal uncertainty created by the law and its effect on innovative businesses in Germany.

In its recent proposal for a Directive on Copyright in the Digital Single Market, the Commission
recommends expanding the reproduction right to press publishers with respect to the digital use of their
press publications. Although certain EU stakeholders, particularly from the publishing industry, have
supported this proposal, online news aggregators, including but not limited to U.S. service suppliers, have
raised concerns regarding the potential impact of this proposed directive, in part because of their
experiences with the German and Spanish laws.

France. In July 2016, France passed the Freedom of Creation Act, a set of measures designed to bolster
suppliers of cultural products through subsidies and other governmental interventions. The so-called
“thumbnail amendment” in the Freedom of Creation Act, found in Article 30, requires “automated image
referencing services” to remunerate French rights collecting societies for the right to “reproduce and
represent” an image. Individual artists or photographers cannot opt out of this licensing regime. Although
the act requires its implementation no later than six months after its promulgation, on January 8, 2017, the
French government’s initial Article 30 implementing decree was rejected by the State Council, France’s
highest administrative court, on the grounds that the article’s remuneration mechanism does not conform
to EU legislation. Due to 2017 presidential and legislative elections in France, it may be 2018 before further
efforts are made to implement the thumbnail amendment. How images subject to the thumbnail amendment
will be determined and how a collecting society will be managed and funded remain unclear. But these
requirements could present market access barriers for online services based in the United States and
elsewhere that index images, and they may affect the ability of these and other innovative services to operate
and grow in the French market to the possible detriment of visual artists.

Other Issues

Geo-blocking

On May 25, 2016, the Commission issued an “e-Commerce package” that included a proposed draft
regulation targeting “unjustified geo-blocking,” which the Commission views as unnecessary

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discrimination amongst residents of the EU based on nationality, place of residence, or place of
establishment. The proposed geo-blocking regulation is still being reviewed by the Council and the
Parliament, but the Commission expects it to be enacted during 2017. The Commission defines geo-
blocking as a market segmentation practice whereby vendors treat their customers differently, based on the
EU Member State in which they reside or are located, by applying different contract terms, directing them
to different websites, or offering different prices, usually based on the customer’s IP address, physical
address, or nationality, or on the issuer of the customer’s credit or debit card. In its proposed draft
regulation, the Commission proposed to bar unjustifiable “geo-discrimination,” and set forth disclosure
requirements for businesses that engage in geo-blocking or re-routing to justify these practices. Several
companies have expressed concerns that the elimination of what some EU officials consider to be
“unjustified geo-blocking” could adversely affect companies’ ability to market tailored offerings to
different customers or engage in territorial licensing of audiovisual works.

Cross-Border Contract Rules

In December 2015, the European Commission tabled legislative proposals on contract rules on the supply
of digital content (e.g., streaming music) and on contract rules on the online sale of physical goods (e.g.,
buying a camera online). The two proposed Directives are now before the Council and Parliament for
review and amendment and are expected to be finalized during the first half of 2017. The proposals seek
to address concerns over a perceived relative lack of legal remedies in certain cases, such as for “defective”
digital content purchased online. Specific provisions include expanding the cases in which vendors may
rely on their own national laws when selling to other EU markets and improving coordination and
monitoring for infringement of consumer protection rules.

It is not yet known whether, and to what extent, greater regulatory harmonization would be beneficial for
U.S. online providers selling in the EU. The Commission’s proposal to create “harmonized EU rules for
online purchases of digital content” should reduce burdens for all sellers, including U.S. providers. In
particular, this should help smaller players to scale up in the EU, requiring fewer resources to manage legal
differences between markets. It is not clear, however, what impact regulatory harmonization in the final
Directives will have on other aspects of cross-border electronic commerce, potentially burdening providers
of digital content. These include possible new rules affecting contracts between such providers and users,
remuneration for damage done by “defective” digital content, and data portability requirements.

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GHANA
TRADE SUMMARY

The U.S. goods trade surplus with Ghana was $509 million in 2016, a 20.5 percent decrease ($131 million)
over 2015. U.S. goods exports to Ghana were $830 million, down 12.6 percent ($119 million) from the
previous year. Corresponding U.S. imports from Ghana were $321 million, up 3.8 percent. Ghana was the
United States' 81st largest goods export market in 2016.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Ghana issues its own standards for most products under the auspices of the Ghana Standards Authority
(GSA). The GSA has promulgated more than 500 Ghanaian standards and adopted more than 2,000
international standards for certification purposes. The Ghanaian Food and Drugs Authority is responsible
for enforcing standards for food, drugs, cosmetics, and health items.

Some imports are classified as “high risk goods” (HRG) that must be inspected by GSA officials at the port
to ensure they meet Ghanaian standards. The GSA classifies these HRGs into 20 broad groups, including
food products, electrical appliances, and used goods. U.S. stakeholders have found this classification
system vague and confusing. For example, the category of “alcoholic and nonalcoholic products” could
include anything from beverages to pharmaceuticals to industrial products. According to GSA officials,
these imports are classified as high risk because they pose “potential hazards,” although that phrase remains
undefined in law or regulation.

Importers of HRGs must register and obtain approval from GSA prior to importing any of these goods. In
particular, as part of this approval, the importer must submit to GSA a sample of the good, accompanied by
a certificate of analysis (COA) or a certificate of conformance (COC) from an accredited laboratory in the
country of export. Frequently, GSA officials will conduct a physical examination of the goods and check
labeling and marking requirements to ensure that they are released within 48 hours. Currently, the fee for
registering the first three HRGs is GHS 100 (about $25) and GHS 50 (about $12.50) for each additional
product, valid for one year and subject to renewal.

Any HRG presented to enter Ghana without a COC or COA from an accredited laboratory is detained and
subjected to testing by the GSA. The importer is required to pay the testing fee based on the number of
products and the parameters tested.

Expiration Date and Fat Content Requirements

The GSA requires that all food products carry expiration and shelf life dates. Expiration dates must extend
at least to half the projected shelf life at the time the product reaches Ghana. Goods that do not have half
of their shelf life remaining are seized at the port of entry and destroyed. The United States has raised this
issue with Ghana in recent years and questioned the requirement’s consistency with the Codex Alimentarius
Commission General Standard for Labeling of Pre-packaged Foods.

To address human health risks, Ghana prohibits the importation of meat with a fat content by weight greater
than 25 percent for beef, 25 percent for pork, 15 percent for poultry, and 30 percent for mutton.

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Imported turkeys must have their oil glands removed. Ghana also restricts the importation of condensed or
evaporated milk with less than 8 percent milk fat by weight, and dried milk or milk powder containing less
than 26 percent by weight of milk fat, with the exception of imported skim milk in containers.

IMPORT POLICIES

Tariffs

The Economic Community of West African States (ECOWAS) Common External Tariff (CET), which was
formally adopted by ECOWAS in 2013, entered into force in Ghana on February 1, 2016. The CET has
five tariff bands: no duty on essential social goods (e.g., medicine); five percent duty on basic raw materials,
capital goods and specific inputs; 10 percent duty on intermediate goods; 20 percent duty on final consumer
goods; and 35 percent duty on goods in certain sectors that the government seeks to protect, such as poultry
and rice.

Ghana has bound all agricultural tariffs in the WTO at an average rate of 96.5 percent, more than five times
the average level of its MFN applied rates on agricultural goods. On industrial goods, almost all of Ghana’s
tariffs are unbound at the WTO, such that Ghana could raise tariffs to any rate at any time without violating
its WTO commitments, which contributes to uncertainty for importers and exporters.

Nontariff Measures

Importers are confronted by a variety of fees and charges in addition to tariffs. Since 2014, Ghana levies a
17.5 percent VAT-like tax on all refined petroleum products. In addition, Ghana imposes a 0.5 percent
ECOWAS levy on all goods originating from non-ECOWAS countries and charges 0.4 percent of the free
onboard value of goods (including VAT) for the use of the Ghana Community Network, an automated
clearing system.

Parliament passed the Ghana Export-Import Bank Act in March 2016. Under the new law, which came
into effect on January 3, 2017, Ghana imposes a 0.75 percent levy on all non-petroleum products imported
in commercial quantities. It replaces the Export Development and Agricultural Investment Fund levy of
0.5 percent. Ghana also applies a one percent processing fee on all duty-free imports. In 2013, Ghana
imposed a special import levy of one percent on the cost, insurance, and freight (CIF) value of goods under
chapters 84 and 85 of the Harmonized System schedule which covers, inter alia, boilers and certain types
of machinery, electrical machinery, mechanical appliances and recording devices, and imposed a special
import levy of two percent of the CIF value on all other imports, except for some petroleum products and
fertilizers. These special import levies are in effect through the end of 2017.

An examination fee of one percent is applied to imported vehicles. Imported used vehicles that are more
than 10 years old incur an additional tax ranging from 2.5 percent to 50 percent of the CIF value. The
Customs Division of the Ghana Revenue Authority maintains a price list that is used to determine the value
of imported used vehicles for tax purposes. This system is not transparent and the price list used for
valuation is not publicly available.

The Ghanaian government requires certificates for imports of food, cosmetics, and agricultural and
pharmaceutical goods. Since 2014, Ghana has banned the importation of tilapia in order to protect local
fishermen, limited the quantity of import permits issued for poultry and poultry products, and imposed a
domestic poultry purchase requirement.

All communications equipment imports require a clearance letter from the National Communications
Authority. Securing a clearance letter prior to importation can reduce delays at the port of entry.

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Customs Procedures

Ghanaian port practices continue to present major obstacles to trade. Officials do not effectively utilize
risk management-based inspection approaches and generally inspect all imports on arrival, causing delays
and increased costs. Importers report erratic application of customs and other import regulations, lengthy
clearance procedures, and corruption. The resulting delays contribute to product deterioration and result in
significant losses for importers of perishable goods. Additionally, Ghana’s ports suffer from congested
roads and lack a functioning rail system to transport freight, creating long waits for ships to berth at cargo
terminals and for containers to be transported out of the ports. Ghana Ports and Harbor Authority (GPHA)
is working to modernize both the Ports of Tema and Takoradi. In November 2016, the government of
Ghana launched a $1.5 billion Public-Private Partnership between GPHA and Meridian Port Services, a
partnership representing interests from the Netherlands and France, to quadruple the capacity of the Tema
Port. This port expansion project is expected to be completed in 2019.

The government launched its National Single Window in December 2015. While the single window trade
portal is still under development, it currently includes information on customs and other requirements for
all border agencies. The Customs Division of the Ghana Revenue Authority has taken on the inspection
and valuation role once occupied by five licensed destination inspection companies, who many believe
were the source of the long clearance delays. However, the one percent fee associated with the inspections
is still being collected.

Ghana has ratified the WTO Trade Facilitation Agreement and identified the articles it will apply at entry
into force (Category A).

GOVERNMENT PROCUREMENT

Some large public procurements are conducted with open tendering and allow the participation of
nondomestic firms; however, single source procurements are common on many government contracts. A
guideline that applies to current tenders gives a margin of preference of 7.5 percent to 20 percent to domestic
suppliers of goods and services in international competitive bidding. Notwithstanding the public
procurement law, companies report that locally funded contracts lack full transparency. Supplier- or foreign
government-subsidized financing arrangements appear in some cases to be a crucial factor in the award of
government procurements. Allegations of corruption in the tender process are fairly common.

Ghana is not a signatory to the WTO Agreement on Government Procurement.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Ghana was not listed in the 2016 Special 301 Report. In 2016, Ghana launched its first national intellectual
property rights (IPR) policy and strategy. Further, Ghana has taken action to enforce IPR, including
periodically conducting raids on physical markets for pirated works and inspections of import shipments.
Despite Ghana’s effort to strengthen its IPR regime, enforcement remains weak and unreasonable delays in
infringement proceedings discourage IPR owners from filing new claims in local courts.

SERVICES BARRIERS

Telecommunications

For licenses for 800 MHz spectrum for mobile telecommunications services, Ghana restricts foreign
participation to a joint venture or consortium that includes a minimum of 35 percent indigenous Ghanaian

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ownership. Applicants that do not reach 35 percent Ghanaian ownership within 13 months from the
effective date of the license risk severe penalties.

Following legislation enacted in 2009, Ghana requires a minimum rate of $0.19 per minute for terminating
international calls into Ghana, significantly higher than the average rate prior to 2009. This rate increase
has correlated with a decrease in call volume from the United States to Ghana, and a decrease in U.S.
termination payments to carriers in Ghana.

INVESTMENT BARRIERS

All foreign investment projects must register with the Ghana Investment Promotion Center. While the
registration process is designed to be completed within five business days, the process often takes
significantly longer. Foreign investments are also subject to the following minimum capital requirements:
$200,000 for joint ventures with a Ghanaian partner; $500,000 for enterprises wholly-owned by a non-
Ghanaian; and $1 million for trading companies (firms that buy or sell imported goods or services) wholly
owned by non-Ghanaian entities. Trading companies are also required to employ at least 20 skilled
Ghanaian nationals.

Ghana’s investment code excludes foreign investors from participating in eight economic sectors: petty
trading; the operation of taxi and car rental services with fleets of fewer than 25 vehicles; lotteries
(excluding soccer pools); the operation of beauty salons and barber shops; printing of recharge scratch
cards for subscribers to telecommunications services; production of exercise books and stationery; retail of
finished pharmaceutical products; and the production, supply, and retail of drinking water in sealed
pouches.

Mining

Ghana restricts the issuance of mining licenses based on the size of the mining operation. Foreign investors
are restricted from obtaining a Small Scale Mining License for mining operations that equal an area less
than 25 acres (10 hectares). Non-Ghanaians may only apply for a mineral right in respect of industrial
minerals for projects involving an investment of $10 million or above.

The Minerals and Mining Act (2006, Act 703) mandates compulsory local participation, whereby the
government acquires a 10 percent equity in ventures at no cost. In order to qualify for a license, a non-
Ghanaian company must be registered in Ghana, either as a branch office or a subsidiary that is incorporated
under the Ghana Companies Code or Private Partnership Act.

Oil and Gas

The oil and gas sector is subject to a variety of state ownership and local content requirements. The
Petroleum (Exploration and Production) Act (2016, Act 919) mandates local participation. All entities
seeking petroleum exploration licenses in Ghana must create a consortium in which the state-owned Ghana
National Petroleum Company (GNPC) holds a minimum 10 percent stake. The Petroleum Commission
issues all licenses, but exploration licenses must be approved by Parliament. Further, local content
regulations specify in-country sourcing requirements with respect to the full range of goods, services,
hiring, and training associated with petroleum operations. The regulations also require mandatory local
equity participation for all suppliers and contractors. The Minister of Petroleum must approve all contracts,
sub-contracts, and purchase orders above $100,000. Non-compliance with these regulations may result in
a criminal penalty, including imprisonment for up to five years.

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The Petroleum Commission applies registration fees and annual renewal fees on foreign oil and gas service
providers, which, depending on a company’s annual revenues, range from $70,000 to $150,000, compared
to fees of between $5,000 and $30,000 for local companies.

Insurance

The National Insurance Commission (NIC) imposes nationality requirements with respect to the board and
senior management of locally-incorporated insurance and reinsurance companies. At least two board
members must be Ghanaians, and either the Chairman of the board or Chief Executive Officer (CEO) must
be Ghanaian. In situations where the CEO is not a Ghanaian, the NIC requires that the Chief Financial
Officer be Ghanaian.

OTHER BARRIERS

Foreign investors experience difficulties and delays in securing required work visas for their non-Ghanaian
employees. The process for obtaining required work permits can be unpredictable and take several months
from application to delivery. Obtaining access to land may also be challenging for foreign investors. Non-
Ghanaians are only permitted to acquire interests in land on a long-term leasehold basis, and Ghana’s
complex land tenure system makes establishing clear title on real estate difficult.

Foreign investors in Ghana must also contend with a politicized business community and a lack of
transparency in certain government operations. Entrenched local interests can derail or delay new entrants.
The political leanings of the Ghanaian partners of foreign investors are often subject to government
scrutiny. Corruption among government and business figures also remains a concern. Ghanaian law
enforcement and judicial bodies have robust legal powers to fight corruption in the country, but the
government does not implement anticorruption laws effectively.

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GUATEMALA
TRADE SUMMARY

The U.S. goods trade surplus with Guatemala was $2.0 billion in 2016, a 15.7 percent increase ($265
million) over 2015. U.S. goods exports to Guatemala were $5.9 billion, up 1.6 percent ($93 million) from
the previous year. Corresponding U.S. imports from Guatemala were $3.9 billion, down 4.2 percent.
Guatemala was the United States' 36th largest goods export market in 2016.

U.S. exports of services to Guatemala were an estimated $1.5 billion in 2015 (latest data available) and
U.S. imports were $999 million.

U.S. foreign direct investment (FDI) in Guatemala (stock) was $1.1 billion in 2015 (latest data available),
a 5.1 percent decrease from 2014.

Free Trade Agreement

The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR or the
Agreement) entered into force for the United States, El Salvador, Guatemala, Honduras, and Nicaragua in
2006, for the Dominican Republic in 2007, and for Costa Rica in 2009. The CAFTA-DR significantly
liberalizes trade in goods and services, as well as includes important disciplines relating to customs
administration and trade facilitation, technical barriers to trade, government procurement, investment,
telecommunications, electronic commerce, intellectual property rights, transparency, and labor and
environment.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Sanitary and Phytosanitary Barriers

Guatemalan sanitary and phytosanitary import requirements change frequently, often without prior WTO
notification. Import permit requirements frequently change, resulting in an 80 percent initial rejection rate,
requiring re-application and delays of up to five days and extra demurrage costs. As a result, U.S.
agricultural exports are sometimes detained at port until a final permit or waiver is issued. Guatemala lacks
a science-based risk analysis approach for developing import regulations for agricultural and food products,
and imposes burdensome state-by-state certification requirements.

In November 2016, Guatemala published an official list of quarantine pests, identifying those that require
fumigation. Since then, fumigations of U.S. agricultural products have dropped from 90 percent to 30
percent. Guatemala also reduced the number of pests that needed to be declared for fresh produce. Seeds
and propagative materials are still subject to a strict regulations that demands disease-free-status
certification and a more restrictive pest-free status.

In September 2016, Guatemala rescinded Regulation 382-2014 which required mandatory plant-by plant
inspection prior to approval for select meat and seafood exports. However, it is unclear what inspection
procedures, if any, will replace this regulation. To date, U.S. exports of seafood products continue to be
limited to those exported from previously approved processing plants. Beef, pork and poultry meat are not
affected.

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IMPORT POLICIES

Tariffs

As a member of the Central American Common Market, Guatemala applies a harmonized external tariff on
most items at a maximum of 15 percent, with some exceptions. Under the CAFTA-DR, however, 100
percent of originating U.S. consumer and industrial goods enter Guatemala duty free. Nearly all textile and
apparel goods that meet the Agreement’s rules of origin also enter Guatemala duty free and quota free,
providing opportunities for U.S. and regional fiber, yarn, fabric, and apparel manufacturing companies.

In addition, 95 percent of U.S. agricultural exports enter Guatemala duty free under the CAFTA-DR.
Guatemala will eliminate its remaining tariffs on nearly all U.S. agricultural products by 2020, on rice and
chicken leg quarters by 2023, and on dairy products by 2025. Guatemala has requested to the other CAFTA-
DR members approval to accelerate the elimination of the out-of-quota tariff for chicken leg quarters.
Depending on member responses, the tariff could be eliminated in 2017, five years early. For certain
products, tariff-rate quotas (TRQs) permit duty-free access for specified quantities during the tariff phase-
out period, with the duty-free amount expanding during that period. Guatemala will liberalize trade in
white corn through continual expansion of a TRQ, rather than by the reduction of the out-of-quota tariff.

Nontariff Measures

All CAFTA-DR countries, including Guatemala, committed to improve transparency and efficiency in
administering customs procedures. The CAFTA-DR countries also committed to ensuring greater
procedural certainty and fairness in the administration of these procedures, and agreed to share information
to combat illegal transshipment of goods. Customs information for Guatemala is available at:
http://portal.sat.gob.gt/sitio/.

Guatemala’s denial of claims for preferential treatment for U.S. products under the CAFTA-DR continues
to be an occasional source of difficulty in exporting to Guatemala. U.S. companies have raised concerns
that the Guatemalan Customs Administration (part of the Superintendence of Tax Administration) might
be using reference prices, such as prices from imports in previous months, to adjust invoice price
declarations.

Stakeholders report that Guatemalan customs authorities occasionally challenge declared tariff
classifications, including for products for which the tariff classifications should be straightforward, and
attempt to reclassify the products so that they are subject to a higher tariff. These practices raise concerns
that the customs administration might be denying CAFTA-DR preferential tariff treatment to qualifying US
exports, as a means of increasing revenue. The United States will continue to raise these concerns with
Guatemala.

GOVERNMENT PROCUREMENT

The CAFTA-DR requires that procuring entities use fair and transparent procurement procedures, including
advance notice of purchases as well as timely and effective bid review procedures, for procurement covered
by the Agreement. Under the CAFTA-DR, U.S. suppliers are permitted to bid on procurements of most
Guatemalan government entities, including government ministries and sub-central and state-owned entities,
on the same basis as Guatemalan suppliers. The anticorruption provisions in the CAFTA-DR apply inter
alia to government procurement.

Reforms of Guatemala’s Government Procurement Law in 2009 simplified bidding procedures, eliminated
the fee previously charged to suppliers for bidding documents, and provided an additional opportunity for

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suppliers to raise objections to the bidding process. Furthermore the Guatemalan Congress approved
reforms to the Government Procurement Law in November 2015 that improved procurement transparency
and efficiency by barring government contracts for financers of political campaigns/parties, members of
Congress, other elected officials, government workers, and their family members. The 2015 reforms
expanded the scope of procurement oversight to include public trust funds and all institutions (including
NGOs) executing public funds and also eliminated some of the special-purpose mechanisms used to avoid
competitive bidding processes. The Guatemalan Congress approved a further set of reforms to the
Government Procurement Law in October 2016 that will help expedite public spending and simplify
procedures for implementation of some of the reforms approved in 2015. However, foreign suppliers must
still submit their bids through locally-registered representatives, a process that can place foreign bidders at
a competitive disadvantage.

Guatemala is neither a signatory nor an observer to the WTO Agreement on Government Procurement.

EXPORT SUBSIDIES

Guatemala employed an export incentive program in the “Law for the Promotion and Development of
Export Activities and Drawback” through December 31, 2015. Guatemala provided tax exemptions and
duty benefits to companies that imported over half of their production inputs or components and exported
their completed products. Investors were granted a 10-year exemption from both income taxes and the
Solidarity Tax, which is Guatemala’s temporary alternative minimum tax. Additionally, companies were
granted an exemption from the payment of tariffs and value-added taxes on imported machinery and a one-
year suspension (extendable to a second year) of the same tariffs and taxes on imports of production inputs
and packing material. Taxes were waived when the goods were re-exported. The Guatemalan Congress
amended the “Law for the Promotion and Development of Export Activities and Drawback” in February
2016 to replace the tax incentive program that concluded in December 2015. The new tax exemptions are
applied to apparel and textile companies as well as to information and communication technology service
providers such as call centers and business processes outsourcing (BPO) operations.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Guatemala remained on the Watch List in the 2016 Special 301 Report. Guatemala has a generally sound
intellectual property rights (IPR) legal framework, but enforcement is insufficient to effectively address the
wide availability of pirated and counterfeit goods. Additional concerns include trademark squatting, cable
signal piracy, and government use of unlicensed software. The United States will continue to engage
Guatemala on these and other concerns, including through the Special 301 process, and will continue to
monitor Guatemala’s implementation of its IPR obligations under the CAFTA-DR.

SERVICES BARRIERS

Professional Services

Public notaries must be Guatemalan nationals. Foreign enterprises may provide licensed professional
services in Guatemala only through a contract or other relationship with an enterprise established in
Guatemala.

Telecommunications

In April 2014, the Guatemalan Congress approved a new telecommunications law that included
requirements designed to strengthen the country’s data transmission infrastructure. Some stakeholders
raised concerns that the conditions imposed on operators appeared to discriminate against small and new

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suppliers. The Constitutional Court temporarily suspended some provisions of the law in June 2014 and
revoked the entire law in March 2016 as unconstitutional during the Congressional approval process.

INVESTMENT BARRIERS

Some U.S. companies operating in Guatemala have raised concerns that complex and unclear laws and
regulations constitute barriers to investment. Resolution of business and investment disputes through
Guatemala’s judicial system is extremely time-consuming and civil cases can take many years to resolve.
In addition, government institutions in Guatemala can be prone to third-party influence. U.S. firms and
citizens have found corruption in the government, including in the judiciary, to be a significant concern and
a constraint to investment.

Delays and uncertainty in obtaining licenses from relevant Guatemalan authorities for exploration and
operation in extractive industries have the effect of inhibiting current and potential investments from U.S.
firms.

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HONDURAS
TRADE SUMMARY

The U.S. goods trade surplus with Honduras was $227 million in 2016, a 50.5 percent decrease ($231
million) over 2015. U.S. goods exports to Honduras were $4.8 billion, down 7.1 percent ($369 million)
from the previous year. Corresponding U.S. imports from Honduras were $4.6 billion, down 2.9 percent.
Honduras was the United States' 41st largest goods export market in 2016.

U.S. exports of services to Honduras were an estimated $998 million in 2015 (latest data available) and
U.S. imports were $648 million. Sales of services in Honduras by majority U.S.-owned affiliates were
$500 million in 2014 (latest data available).

U.S. foreign direct investment (FDI) in Honduras (stock) was $1.2 billion in 2015 (latest data available), a
58.6 percent increase from 2014. U.S. direct investment in Honduras is led by manufacturing, nonbank
holding companies, and information.

Free Trade Agreement

The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR or the
Agreement) entered into force for the United States, El Salvador, Guatemala, Honduras, and Nicaragua in
2006, for the Dominican Republic in 2007, and for Costa Rica in 2009. The CAFTA-DR significantly
liberalizes trade in goods and services, as well as includes important disciplines relating to customs
administration and trade facilitation, technical barriers to trade, government procurement, investment,
telecommunications, electronic commerce, intellectual property rights, transparency, and labor and
environment.

TECHNICAL BARRIERS TO TRADE

Product Registration

Product registration is a legal requirement for marketing products in Honduras. Registration of products
with the Ministry of Health is particularly burdensome for importers. The Ministry of Health registers food
items, medical devices, beauty products, and pharmaceuticals. In November 2016, the Ministry of Health
announced plans to restructure and modernize its traditional administrative and operational procedures.
Among the main challenges related to product registration are corruption, lack of specialized personnel, a
laboratory system unable to meet demand, lack of equipment and electronic platforms, and outdated
legislation. As a means of addressing this issue, the Honduran government has signaled its interest in
partnering with the United States Government to strengthen the product registration regime and alleviate
barriers. U.S. Embassy Tegucigalpa hosted a regional product registration conference in early 2017, where
leading experts from Government and the private sector shared best practices with the countries of the
Northern Triangle.

IMPORT POLICIES

Tariffs

As a member of the Central American Common Market, Honduras applies a harmonized external tariff on
most items at a maximum of 15 percent, with some exceptions.

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Under the CAFTA-DR, 100 percent of U.S. consumer and industrial goods enter Honduras duty free.
Nearly all textile and apparel goods that meet the Agreement’s rules of origin also enter Honduras duty free
and quota free, creating opportunities for U.S. fiber, yarn, fabric, and apparel manufacturers.

In addition, more than half of U.S. agricultural exports currently enter Honduras duty free. Honduras will
eliminate its remaining tariffs on nearly all U.S. agricultural products by 2020, on rice and chicken leg
quarters by 2023, and on dairy products by 2025. For certain products, tariff-rate quotas (TRQs) permit
some duty-free access for specified quantities during the tariff phase-out period, with the duty-free amount
expanding during that period. Honduras will liberalize trade in white corn through continual expansion of
a TRQ, rather than by the reduction of the out-of-quota tariff.

TRQs under the CAFTA-DR are to be made available on January 1 of each year. However in 2016,
Honduras did not issue TRQ permits for white corn and milled rice until March. Honduras claimed that
the delay was due to an audit of permit requests. The United States is carefully monitoring Honduran
issuance of these permits and has reminded Honduran authorities about the importance of issuing them in
a timely manner.

Nontariff Measures

Under the CAFTA-DR, all CAFTA-DR countries, including Honduras, committed to improve transparency
and efficiency in administering customs procedures. All CAFTA-DR countries, including Honduras, also
committed to ensuring greater procedural certainty and fairness in the administration of these procedures,
and all CAFTA-DR countries agreed to share with each other information to combat illegal transshipment.

Restructuring of Honduras Revenue Directorate and Customs Service

In March 2016, the government of Honduras restructured its customs and tax agency, the Executive Tax
Authority (DEI), and significantly reduced its workforce. A new Tax Administration System (SAR) has
replaced DEI and assumed DEI’s role in verifying that claims of origin meet the requirements of the
CAFTA-DR and other international agreements. The SAR has implemented a much stricter approach to
customs compliance, which has initially resulted in increased fines against Honduran importers, whose
paperwork may contain errors, in addition to delays in customs processing. However, this restructuring
presents an opportunity for Honduras to modernize customs processing. The future implementation of
paperless customs processing for importers and exporters, in order to simplify and expedite the clearance
process and promote greater transparency and oversight by Honduran customs officials, is a priority for the
SAR. To further assist the Honduran government in the restructuring of the SAR and in building its
technical capacity, the U.S. Embassy has launched a Customs Task Force, which aims to provide a variety
of technical assistance, including site visits to view U.S. port operations, trainings and workshops, and
technology exhibitions with U.S. companies.

Honduras Ratification of WTO Trade Facilitation Agreement

In July 2016, Honduras formally ratified the WTO Trade Facilitation Agreement (TFA), which contains
provisions for expediting the movement, release, and clearance of goods, and sets out measures for effective
cooperation for customs compliance and trade facilitation issues. As a means to improve customs and trade
facilitation within the Northern Triangle, the government of Honduras has formally signed a cooperation
agreement with USAID to identify and alleviate trade bottlenecks along its border with El Salvador.

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GOVERNMENT PROCUREMENT

The CAFTA-DR requires that procuring entities use fair and transparent procurement procedures, including
advance notice of purchases and timely and effective bid review procedures, for procurements covered by
the Agreement. Under the CAFTA-DR, U.S. suppliers are permitted to bid on the procurements of most
Honduran government entities, including those of key ministries and state-owned enterprises, on the same
basis as Honduran suppliers. The anticorruption provisions in the CAFTA-DR require the Honduran
government to ensure under its domestic law that bribery in matters affecting trade and investment,
including in government procurement, is treated as a criminal offense or is subject to comparable penalties.
There is no requirement that U.S. firms act through a local agent to participate in public tenders.

Efforts to strengthen Honduran procurement systems are also underway. In order to facilitate broader
dissemination of public bidding opportunities, the Honduran government has established an online
Contracting and Procurement Information System known as “Honducompras,” which is administered by
the State Procurement Agency (ONCAE). As part of ONCAE’s State Contracting and Procurement
Efficiency Program to simplify the bidding process, Honduras implemented a national “Standard Bidding
Document,” which has been deemed acceptable to multilateral financing entities such as the Inter-American
Development Bank and the World Bank.

Honduras is neither a party nor an observer to the WTO Agreement on Government Procurement.

EXPORT SUBSIDIES

Honduras currently employs the following export incentive programs: Free Trade Zone of Puerto Cortes
(ZOLI), Export Processing Zones (ZIP), and Temporary Import Regime (RIT).

Honduras provides tax exemptions to firms in free trade zones. Under the CAFTA-DR, Honduras may not
adopt new duty waivers or expand existing duty waivers that are conditioned on the fulfillment of a
performance requirement (e.g., the export of a given level or percentage of goods). However, Honduras
may maintain such duty waiver measures for such time as it is an Annex VII country for the purposes of
the WTO Agreement on Subsidies and Countervailing Measures.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

The United States worked closely with the government of Honduras as it developed a Work Plan, finalized
in early 2016, to improve the protection and enforcement of intellectual property in Honduras. Effective
implementation of the Work Plan will help address the need for more effective administrative and criminal
enforcement against intellectual property violations, including by combatting cable and satellite signal
piracy and the scope of geographical indications. Greater clarity is needed to improve procedures relating
to customs enforcement, including developing a trademark recordation system, and relating to the scope of
protections for geographical indications, among other issues.

SERVICES BARRIERS

U.S. firms and citizens report a significant concern with obtaining government permits, particularly in real
estate transactions, and meeting regulatory requirements in the telecommunications, health, and energy
sectors.

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INVESTMENT BARRIERS

Honduran law places certain restrictions on foreign ownership of land within 40 kilometers of the country’s
coastlines and national boundaries. However, foreigners are allowed to purchase properties (with some
acreage restrictions) in designated zones established by the Ministry of Tourism in order to construct
permanent or vacation homes. Inadequate land title procedures have led to numerous investment disputes
involving U.S. nationals who are landowners in Honduras.

Corruption

The Hernández Administration has undertaken several measures in an effort to address corruption,
including pursuing indictments against former government officials; signing international transparency
initiatives, such as the Construction Sector Transparency Initiative; and dedicating resources to bolster
existing commitments under initiatives such as the Open Government Partnership and the Extractive
Industry Transparency Initiative. Despite these efforts, U.S. firms and citizens continue to report corruption
in the government, including in the judiciary, to be a significant concern and a constraint to successful
investment in Honduras. These reports suggest that corruption is pervasive in government procurement,
the issuance of government permits, real estate transactions (particularly land title transfers), and the
regulatory system in general. The telecommunications, health, and energy sectors appear to be particularly
problematic.

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HONG KONG
TRADE SUMMARY

The U.S. goods trade surplus with Hong Kong was $27.5 billion in 2016, a 9.4 percent decrease ($2.8
billion) over 2015. U.S. goods exports to Hong Kong were $34.9 billion, down 6.1 percent ($2.3 billion)
from the previous year. Corresponding U.S. imports from Hong Kong were $7.4 billion, up 8.7 percent.
Hong Kong was the United States' 9th largest goods export market in 2016.

U.S. exports of services to Hong Kong were an estimated $9.8 billion in 2015 (latest data available) and
U.S. imports were $8.8 billion. Sales of services in Hong Kong by majority U.S.-owned affiliates were
$34.3 billion in 2014 (latest data available), while sales of services in the United States by majority Hong
Kong-owned firms were $4.5 billion.

U.S. foreign direct investment (FDI) in Hong Kong (stock) was $64.0 billion in 2015 (latest data available),
a 5.9 percent increase from 2014. U.S. direct investment in Hong Kong is led by nonbank holding
companies, wholesale trade, and information.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Hong Kong is a special administrative region (SAR) of the People’s Republic of China, and the Hong Kong
Basic Law provides for a high degree of autonomy in all matters but defense and foreign affairs. For trade,
customs, and immigration purposes, Hong Kong is an independent administrative entity with its own trade
laws and regulations, and is a separate member of both the WTO and APEC.

Technical Barriers to Trade

The Hong Kong government published a draft Code of Marketing and Quality of Formula Milk and Related
Products and Food Products for Infants and Young Children (draft Code) in October 2012, and is in
the process of finalizing the draft Code. If the draft Code is implemented as originally drafted, U.S.
stakeholders maintain that, together with related legislative proposals, it will have significant negative
impacts on sales of food products for infants and young children, and is more restrictive than relevant
international standards. The United States is continuing to engage with the Hong Kong government on this
draft measure.

IMPORT POLICIES

The Hong Kong government pursues a market-oriented approach to commerce. Hong Kong is a duty-
free port, with few barriers to trade in goods and services and few restrictions on foreign capital flows and
investment.

COMPETITION POLICY

Hong Kong’s first comprehensive competition law – the Competition Ordinance (Ordinance) – was passed
by the Legislative Council in June 2012, after six years of public consultation and study. Since then,
Hong Kong has made positive advancements in the development of its competition policy. The Ordinance,
which went into effect in December 2015, contains rules to prohibit anticompetitive agreements and abuse
of market power. The Ordinance also prohibits anticompetitive mergers and acquisitions, but only with
respect to carrier license holders in the telecommunications sector. The maximum penalties under the
Ordinance are 10 percent of the company’s turnover obtained in Hong Kong for each year of violation, up

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to a maximum of three years, and disqualification from direct or indirect involvement in the management
of a company for up to five years. The Ordinance exempts 575 of Hong Kong’s 581 statutory bodies
from its coverage.

The government established a Competition Commission (Commission) and a Competition Tribunal


(Tribunal) in 2013. The Commission is empowered to investigate anticompetitive conduct and promote
public understanding of the value of competition. The Tribunal is in charge of hearing and adjudicating
cases brought before it by the Commission after due investigation. In July 2015, the Commission
published the final version of six enforcement guidelines. To provide further details of how the Commission
intends to carry out its enforcement under the Ordinance, the Commission issued the enforcement policy
and the cartel leniency policy in November 2015.

In the first six months of 2016, the Commission received 1,250 complaints and queries about potentially
anti-competitive conduct. By October 2016, the Commission had begun in-depth probes into 10 cases.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Hong Kong generally provides robust IPR protection and enforcement and has strong laws in place. Hong
Kong also maintains a dedicated and effective enforcement capacity, a judicial system that supports
enforcement efforts with deterrent fines and criminal sentences, and youth education programs that
discourage IPR-infringing activities. On the other hand, Hong Kong’s failure to modernize its copyright
system has allowed it to become vulnerable to digital copyright piracy. While the Hong Kong Customs
and Excise Department routinely seizes IPR-infringing products arriving from mainland China and
elsewhere, U . S . stakeholders report that counterfeit pharmaceuticals, luxury goods, and other infringing
products continue to transit through Hong Kong in significant quantities. Such transits are typically
destined for both the local market and places outside of Hong Kong.

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INDIA
TRADE SUMMARY

The U.S. goods trade deficit with India was $24.3 billion in 2016, a 4.2 percent increase ($970 million)
over 2015. U.S. goods exports to India were $21.7 billion, up 1.1 percent ($237 million) from the previous
year. Corresponding U.S. imports from India were $46.0 billion, up 2.7 percent. India was the United
States' 18th largest goods export market in 2016.

U.S. exports of services to India were an estimated $18.1 billion in 2015 (latest data available) and U.S.
imports were $24.7 billion. Sales of services in India by majority U.S.-owned affiliates were $22.7 billion
in 2014 (latest data available), while sales of services in the United States by majority India-owned firms
were $13.4 billion.

U.S. foreign direct investment (FDI) in India (stock) was $28.3 billion in 2015 (latest data available), a 4.4
percent increase from 2014. U.S. direct investment in India is led by professional, scientific, and technical
services, manufacturing, and wholesale trade.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

In addition to discussing TBT matters with Indian officials under the Trade Policy Forum (TPF), the United
States discusses these issues with India during Committee meetings at the World Trade Organization
(WTO), as well as on the margins of these meetings.

Cosmetics - Registration Requirements

On December 31, 2014, India’s Ministry of Health (MoH) invited comments on a new draft of the Drugs
and Cosmetics (Amendment) Bill 2015. U.S. stakeholders provided comments to India expressing concern
with a new and vague category of “new cosmetics,” the proposed application of clinical trials requirements
to cosmetics, and what stakeholders considered to be excessive damages provisions. India has not yet
published a revised draft of the bill.

Separately, India banned imports of animal-tested cosmetics on February 15, 2015, as a result of Rule 135-
B of the Drug and Cosmetics (Fifth Amendment) Rules, 2014, announced through the Central Drugs
Standard Control Organization (Office of Drugs Controller General India) Circular. India had previously
banned domestic cosmetic testing on animals in May 2014 (Gazette of India, Ministry of Health and Family
Welfare, “Notification” dated May 21, 2014). U.S. exporters have reportedly encountered difficulties
proving that cosmetics comply with the animal testing ban and have yet to receive guidelines from the
Indian government on how to do so.

Food - Package Size and Labeling Requirements

The government of India mandated standard retail package sizes for 19 categories of foods and beverages
effective November 1, 2012, via amendment to the Legal Metrology (Packaged Commodities) Rules, 2011.
This rule has not been notified to the WTO, nor is there any reference to a specific comment period for
domestic stakeholders. As the United States does not impose specific standards for packaging size, and
U.S. package sizes tend to be in English rather than metric units, the list of package sizes effectively
prevents many U.S.-origin products from entering India. Attempts to import such U.S.-origin products
have resulted in rejection at the port of entry. These standards are having a negative effect on trade, with
numerous U.S. brands effectively excluded from the Indian market. The United States continues to raise

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concerns about these standards in various bilateral and multilateral fora in an effort to ensure that U.S.
products have access to the Indian market.

Foods Derived from Biotechnology Crops

Biotechnology products must be approved by the Genetic Engineering Appraisal Committee (GEAC),
before importation or domestic cultivation. India’s biotechnology approval processes are slow, opaque,
and subject to political influences, although, the new GEAC leadership was generally more active in 2016.
For instance, GEAC met more regularly in 2016 and made substantial progress toward approving a public
sector, domestically developed GE mustard plant variety. However, to date, GEAC still has not
recommended the Delhi University GE mustard plant variety for commercial cultivation. Accordingly,
soybean oil and canola oil, derived from genetically engineered (GE) soybeans and canola, remain the only
biotechnology food or agricultural products currently approved for import into the Indian market, and Bt
cotton is the only biotechnology crop approved for commercial cultivation in India. This slow and uncertain
approval process continues to negatively impact product registrations needed to facilitate trade in
biotechnology products. Without enhanced capacity for science-based decision making, India’s acceptance
and approval of additional agricultural biotechnology products will remain limited.

In the event that additional biotechnology products are approved for import in the future, the labeling
requirements for packages containing “genetically modified” foods remain unclear. Lack of clarity
regarding jurisdictional authority between the Food Safety and Standards Authority of India (FSSAI) and
the Ministry of Consumer Affairs could also have negative effects on U.S. crops and products derived from
biotechnology entering the Indian market. Also, the Ministry of Agriculture and Farmers Welfare (MAFW)
has issued regulations that have significantly limited the incentive for research and development, as well as
investment in the agriculture biotechnology sphere. These include the December 2015 Cotton Seed Price
Control Order, 2015, the March 2016 Notification that established the maximum sale price of Bt cottonseed
packets (including the royalty fee), and the May 2016 Licensing and Formats for GM Technology
Agreement Guidelines.

Livestock Genetics

The Department of Animal Husbandry, Dairying, and Fisheries (DAHDF) of the Ministry of Agriculture
imposes restrictions on imports of livestock genetics and establishes quality standards. Importation of
animal genetics also requires a “no objection certificate” (NOC) from the state government, import
permission from the Directorate General of Foreign Trade, and an import permit from the DAHDF. The
entire procedure for obtaining import permission generally takes upwards of four months or longer.
Similarly, certain sanitary conditions are also restrictive, including animal disease regulations and testing
requirements for imports of animal genetics. Neither the burdensome progeny testing nor the NOC are
required of domestic producers of animal genetics. The United States discussed these requirements in
technical animal health meetings held in November 2016 with the DAHDF and will continue to work with
the government of India to resolve the issue.

Dairy Products

India imposes onerous requirements on dairy imports. India continues to insist that dairy products be
derived from animals which have never consumed any feeds containing internal organs, blood meal, or
tissues of ruminant origin. India has explained that its position is based on religious and cultural grounds.
This requirement, along with high tariff rates, continues to prevent market access for U.S. milk and dairy
product exports to India, one of the largest dairy markets in the world. In order to address India’s religious
and cultural concerns, in 2015, the United States proposed a labeling solution to allow for consumer choice

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between dairy products derived from animals that have or have not consumed feeds with ruminant protein.
India has so far rejected that proposal, but has agreed to further discussions on dairy access in 2017.

Alcoholic Beverage Standards

On December 1, 2015, India notified a draft Alcoholic Beverages Standards to the WTO. An update to the
draft standard was published on the FSSAI website for local industry comment on September 9, 2016.
While the updated draft favorably revised the definitions of Tennessee Whiskey and Bourbon, the United
States still has a range of concerns, including certain product definitions, production method specifications,
compositional requirements and ingredient limits, alcohol by volume limits, serving size criteria that
contradict standard international practice, and maximum residue levels for many chemical contaminants
for which standards do not exist in Codex Alimentarius. This new standard would also build on already
onerous labeling and testing requirements. The United States views India as an important export market
for alcoholic beverages and continues to take every opportunity to raise concerns and improve the restrictive
approach to the regulation of alcoholic beverages in India.

Sanitary and Phytosanitary Barriers

The United States has raised concerns about India’s SPS-related trade restrictions in bilateral and
multilateral fora including the TPF, the WTO SPS Committee, and Codex. The United States will continue
to make use of all available fora with a view to securing the entry of U.S. poultry, pork, and other
agricultural products, including among others, alfalfa hay, cherries, strawberries, shrimp feed, and pet food
into the Indian market. As part of the TPF, the United States and India met for a plant health bilateral
meeting in February 2016, followed by an animal health bilateral meeting in November 2016. Both
countries agreed during the October 2016 TPF to continue these meetings in 2017. In addition, a bilateral
meeting on other food issues will be held in 2017 under the umbrella of the TPF.

Food - Product Testing

Importers have expressed concerns with the Food Safety and Standards Authority of India’s (FSSAI) batch-
by-batch inspections at the port because of high cost and the detention of cargoes for indeterminate periods
of time, which is particularly costly with respect to perishable products. In June 2015, India announced a
plan to transition its imported food inspection protocol from batch-by-batch inspections and sampling to a
risk-based approach. During discussions at the 2016 TPF, Indian officials noted that they are actively
working to develop and implement a risk-based inspection system and provided a general overview of their
approach. The United States is collaborating with India on developing more specific guidance and a
timeline to transition its inspections protocols.

On April 1, 2016, the Indian Central Board of Excise and Customs (CBEC) launched its Single Window
Interface for Facilitating Trade (SWIFT) system. This is an initiative by the government of India to
streamline clearances for inbound consignments and to improve the ‘ease of doing business.’ Along with
SWIFT, the CBEC also introduced an Integrated Risk Management facility for partner government
agencies, which is designed to ensure that consignments are selected for testing based on the principle of
risk management – ensuring that that foods that present actual food safety risks are tested while goods that
pose little to no risk can avoid becoming subject to unnecessary procedures by inspection agencies. In the
modified Food Import Regulations published September 2, 2016, FSSAI stated that a risk-based random
sampling will be followed wherein the samples will be drawn randomly based on the risk factor and
compliance history of the importer identified by the newly introduced SWIFT system software. However,
market sources report that the risk-based random sampling database is not yet operational.

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Food - Product Approval

FSSAI’s product approval process has been under intense media and political scrutiny since August 2015
when the Supreme Court of India upheld an earlier decision by the High Court of Bombay that FSSAI did
not have the legal authority to maintain its product approval regime. FSSAI stopped issuing product
approvals in order to come into compliance with the Supreme Court’s decision and is seeking a new
approach to regulate new food and beverage products. On October 4, 2016, FSSAI published its new draft
regulation called the “Food Safety and Standards (Approval for Non-Specified Food and Food Ingredients)
Regulations, 2016.” The draft regulation outlines the new product approval procedures for all food products
that are not covered under any pre-existing regulations under the Food Safety Act, 2006. These products
have been termed by FSSAI as “non-specified food and food ingredients.” Comments were invited from
WTO Members on the draft regulation and the comment period expired on December 16, 2016. This draft
regulation, if fully implemented, could establish an overly burdensome product approval system that could
hamper U.S. exports. Associated implementation delays could be a roadblock to market innovations and
product launches.

Pork

The current Indian import certificate for pork requires that importers make an attestation that imported pork
does not contain any residues of pesticides, drugs, mycotoxins, or other chemicals above maximum residue
levels prescribed in international standards. The United States does not dispute the use of international
standards. However, India’s certificate is problematic because it fails to identify the specific compounds
that India is concerned with and their corresponding limits. Furthermore, veterinary certificates are valid
for only six months, and a separate import permit must be obtained for each imported lot. On March 16,
2015, India notified to the WTO and requested comment from Members on a draft veterinary certificate for
the import of pork and pork products. On November 6, 2015, the Department of Animal Husbandry,
Dairying, and Fisheries (DAHDF) published a revised veterinary health certificate for pork and pork
product imports. To date, this veterinary health certificate has not been notified to the WTO. In September
2016, the United States proposed a veterinary certificate to DAHDF for its approval, but has not received
a response. The United States will continue to seek market access for U.S. pork products in India in 2017.

Poultry

Since 2007, India has banned imports of U.S. poultry, live swine, and related products due to the detection
of low pathogenic and highly pathogenic avian influenza in the United States. The ban is applied on a
countrywide basis, and thus does not take into account regional conditions including areas free of avian
influenza in the United States. The United States repeatedly raised concerns about India’s measures in the
WTO SPS Committee, discussed them bilaterally with India, and in 2012, filed a dispute settlement case at
the WTO. The panel found and the Appellate Body affirmed that India’s avian influenza measures breach
numerous provisions of the WTO SPS Agreement. On June 19, 2015, the WTO Dispute Settlement Body
(DSB) adopted the panel and Appellate Body reports.

On July 17, 2015, India indicated it would bring its measures into compliance with the adverse findings.
The United States and India agreed that India had until June 19, 2016, to comply with the DSB’s
recommendations and rulings. India did not take any action before this date, and on July 7, 2016, the United
States requested the authorization of the DSB to suspend concessions because India had failed to comply
with the recommendations and rulings of the DSB. On July 18, 2016, India objected to the level of
suspension of concessions. At the DSB meeting on July 19, 2016, this matter – the appropriate level of
concessions to be suspended – was referred to arbitration.

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During this same time period, India on two occasions notified to the WTO requirements for poultry and
poultry product imports from countries reporting an outbreak of highly pathogenic or low pathogenic
influenza to the WTO. The United States provided comments on the proposed measures and highlighted
concerns regarding the differences between the content of India’s proposed measures and standards set out
by the OIE. The United States continues to work with India to ensure market access for U.S. poultry
products in India consistent with the WTO decisions. Until then, the United States considers the dispute
unresolved.

Separately, in 2015, FSSAI notified a Draft Order on Meat and Poultry to the WTO. The United States
provided comments on the draft order and expressed concerns regarding: (1) the requirement that imported
meat be derived from animals that were never fed ruminant derived protein; (2) the requirement that
individual establishments be approved as eligible for export to India rather than a systems-based approach
that would examine the food safety controls applied by the United States; and (3) restrictions on the use of
previously approved veterinary drugs. However, FSSAI has not yet notified the final order incorporating
any changes.

Plant Health

India maintains zero-tolerance standards for certain plant quarantine pests, such as weed seeds and ergot
that are not based on risk assessments and result in blocked U.S. wheat and barley imports. Bilateral
discussions to resolve these issues, including at the senior official level, have achieved little success to date.
The government of India’s requirement of methyl bromide (MB) fumigation at the port of origin as a
condition for the import of pulses is not feasible in the United States because of the U.S. phase-out of MB
due to its demonstrated negative impact on the environment. In August 2004, the United States requested
India to permit entry of U.S. peas and pulses subject to inspection and fumigation at the port of arrival.
India has granted a series of extensions allowing MB fumigation on arrival, but has offered no permanent
solution. On September 28, 2016, India’s Ministry of Agriculture confirmed the extension of the
fumigation-upon-arrival waiver for U.S. peas and pulses, including chickpeas, until March 31, 2017. While
these extensions have avoided formal bans on trade, they are frequently last minute and create uncertainty
for U.S. exporters.

IMPORT POLICIES

The United States has actively sought bilateral and multilateral opportunities to open India’s market, and
the government of India has pursued ongoing economic reform efforts. Nevertheless, U.S. exporters
continue to encounter tariff and nontariff barriers that impede imports of U.S. products into India.

Tariffs and other Charges on Imports

The structure of India’s customs tariff and fees system is complex and characterized by a lack of
transparency in determining net effective rates of customs tariffs, excise duties, and other duties and
charges. The tariff structure of general application is composed of a basic customs duty, an “additional
duty,” a “special additional duty,” and an education assessment (“cess”). The additional duty, which is
applied to all imports except for wine, spirits, and other alcoholic beverages, is applied on top of the basic
customs duty, and is intended to correspond to the excise duties imposed on similar domestic products. The
special additional duty is a four percent ad valorem duty that applies to all imports, including alcoholic
beverages, except those imports exempted from the duty pursuant to an official customs notification. The
special additional duty is calculated on top of the basic customs duty and the additional duty. In addition,
there is a three percent education cess (surcharge) applied to most imports, except those exempted from the
cess pursuant to an official customs notification. India charges the cess on the total of the basic customs

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duty and additional duty (not on the customs value of the imported product). A landing fee of one percent
is included in the valuation of all imported products unless exempted through separate notification.

While India publishes applied tariffs and other customs duty rates applicable to imports, there is no single
official publication publically available that includes all relevant and up-to-date information on tariffs, fees,
and tax rates on imports. However, as part of its computerization and electronic services effort, in 2009,
India initiated a web-based Indian Customs Electronic Commerce/Electronic Data Interchange Gateway,
known as ICEGATE (http://icegate.gov.in). It provides options for calculating duty rates, electronic filing
of entry documents (import goods declarations) and shipping bills (export goods declarations), electronic
payment, and online verification of import and export licenses. In addition to being announced with the
annual budget, India’s customs rates are modified on an ad hoc basis through notifications in the Gazette
of India and contain numerous exemptions that vary according to the product, user, or specific export
promotion program, rendering India’s customs system complex to administer and open to administrative
discretion.

India’s tariff regime is also characterized by pronounced disparities between bound rates (i.e., the rates that
under WTO rules generally cannot be exceeded) and the most favored nation (MFN) applied rates charged
at the border. According to the latest WTO data, India’s average bound tariff rate was 48.5 percent, while
its simple MFN average applied tariff for 2015 was 13.4 percent. Many of India’s bound tariff rates on
agricultural products are among the highest in the world, averaging 113.5 percent and ranging from 100
percent to 300 percent. Applied agricultural tariff rates are also high and average 32.7 percent. On a trade-
weighted basis, the average agricultural tariff is 47.2 percent. In addition, while India has bound all
agricultural tariff lines in the WTO, over 25 percent of India’s non-agricultural tariffs remain unbound (i.e.,
there is no WTO ceiling on the rate). Given this large disparity between bound and applied rates, U.S.
exporters face tremendous uncertainty because India has considerable flexibility to change tariff rates at
any time.

The large gap between bound and applied tariff rates in the agricultural sector in particular allows India to
use tariff policy to make frequent adjustments to the level of protection provided to domestic producers,
creating uncertainty for importers and exporters. For example, in January 2013, India issued a customs
notification announcing an immediate doubling of the tariff on imports of crude edible oils. While certain
Indian agricultural applied tariff rates are lower, they still present a significant barrier to trade in agricultural
goods and processed foods (e.g., potatoes, citrus, almonds, apples, grapes, canned peaches, chocolate,
cookies, and frozen French fries and other prepared foods used in quick-service restaurants).

India maintains very high tariff peaks on a number of other goods, including flowers (60 percent), natural
rubber (70 percent), automobiles and motorcycles (60 percent to 100 percent), raisins and coffee (100
percent), alcoholic beverages (150 percent), and textiles (some ad valorem equivalent rates exceed 300
percent). India also instead operates a number of complicated duty drawback, duty exemption, and duty
remission schemes for imports. Eligibility to participate in these schemes is usually subject to a number of
conditions. India also maintains very high basic customs duties, in some cases exceeding 20 percent, on
drug formulations, including life-saving drugs and finished medicines listed on the World Health
Organization’s list of essential medicines.

Despite its goal of moving toward Association of Southeast Asian Nations (ASEAN) tariff rates
(approximately 5 percent on average), India has not systematically reduced the basic customs duty and the
budget increased tariffs on 96 tariff lines considered to be capital goods. India has also raised tariffs on
specified telecommunication equipment (from nil to 7.5 or 10 percent) and on electronic-readers (from nil
to 7.5 percent). Tariffs on other products were increased in March 2016 as well, including industrial solar
water heaters (from 7.5 percent to 10 percent) and solar tempered glass/solar tempered (anti-reflective
coated) glass for use in manufacture of solar cells/modules/panels (from nil to 5 percent), impeding some

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of India’s climate goals. India also increased its duties on medical equipment and devices to a 7.5 percent
basic customs duty, 12.5 percent additional duty, and a 4 percent special additional duty. This increase
applied to devices such as pacemakers, coronary stents and stent grafts, and surgical instruments, and also
to parts of medical devices, such as medical grade polyvinyl chloride sheeting for the manufacture of sterile
Continuous Ambulatory Peritoneal Dialysis bags for home dialysis. U.S. companies have raised significant
concerns with these actions.

Imports are subject to state-level value-added or sales taxes and the Central Sales Tax as well as various
local taxes and charges. India allows importers to apply for a refund of the special additional duty paid on
imports subsequently sold within India and for which the importer has paid state-level value-added taxes.
Importers report that the refund procedures are cumbersome and time consuming. In addition, U.S.
stakeholders have identified various state-level taxes and other charges on imported alcohol that appear to
be higher than those imposed on domestic alcohol. The central government has taken steps and continues
to work with state governments to adopt a national goods and services tax (GST) that would replace most
indirect taxes, including various charges on imports. The GST is designed to simplify the movement of
goods within India. In 2015, India’s government introduced the GST Bill in Parliament and it passed in
July of 2016. India is working on the implementation of the GST law, which would put in place a two-part
system. The first part of the system are the State and Central GST that will be levied simultaneously on
every transaction of goods and services within a State. The second part is an “Integrated GST” that covers
goods and services sold between all Indian states. The Integrated GST would apply to imports. India
intends to implement GST in July 2017.

Import Licenses

India maintains various forms of nontariff regulation on three categories of products: banned or prohibited
items (e.g., tallow, fat, and oils of animal origin); restricted items that require an import license (e.g.,
livestock products and certain chemicals); and “canalized” items (e.g., some pharmaceuticals) importable
only by government trading monopolies and subject to cabinet approval regarding import timing and
quantity. India, however, often fails to observe transparency requirements, such as publication of timing
and quantity restrictions in its Official Gazette or notification to WTO committees.

For purposes of entry requirements, India has distinguished between goods that are new, and those that are
secondhand, remanufactured, refurbished, or reconditioned. India allows imports of secondhand capital
goods by the end users without an import license, provided the goods have a residual life of five years.
India’s official Foreign Trade Policy categorizes remanufactured goods in a similar manner to secondhand
products, without recognizing that remanufactured goods have typically been restored to original working
condition and meet the technical and safety specifications applied to products made from new materials.
Refurbished computer spare parts can only be imported if an Indian chartered engineer certifies that the
equipment retains at least 80 percent of its life, while refurbished computer parts from domestic sources are
not subject to this requirement. India requires import licenses for all remanufactured goods. U.S.
stakeholders report that meeting this requirement, like other Indian import licensing requirements, has been
onerous. Problems that stakeholders report include: excessive details required in the license application;
quantity limitations set on specific part numbers; and long delays between application and grant of the
license.

India subjects boric acid imports to stringent restrictions, including arbitrary import quantity approval
restrictions and other requirements that only apply to imports. No-objection certificates (NOCs) are
required before applying for import permits from the Ministry of Agriculture’s Central Insecticides Board
& Registration Committee. In order to receive an NOC from the relevant Indian government ministries and
departments and an import permit from the Ministry of Agriculture, traders (i.e., wholesalers) of boric acid
for non-insecticidal use must identify end-users of the product, which is often not possible in advance of a

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shipment, and consequently cannot obtain an NOC. In addition, importers must obtain certificates from the
Central Excise Authorities confirming the last three years of the company’s purchases of boric acid,
separated out by the quantity imported and procured locally in India, as well as data on the total output of
the finished product that utilized the boric acid. Meanwhile, local refiners continue to be able to produce
and sell boric acid for non-insecticidal use subject only to a requirement to maintain records showing they
are not selling to end users who will use the product as an insecticide. The United States urged India to
eliminate its import licensing requirements on boric acid in meetings of the WTO Import Licensing
Committee and at the 2016 TPF.

Customs Procedures

U.S. exporters have raised concerns regarding India’s application of customs valuation criteria to import
transactions. India’s valuation procedures allow Indian customs officials to reject the declared transaction
value of an import when a sale is deemed to involve a lower price than the ordinary competitive price,
effectively raising the cost of exporting to India beyond applied tariff rates. U.S. companies have also faced
extensive investigations related to their use of certain valuation methodologies when importing computer
equipment. Companies have also reported being subjected to excessive searches and seizures of imports.

Furthermore, as explained above, India does not assess the basic customs duty, additional duty, and special
additional duty separately on the customs value of a given imported product. Rather, India assesses each
of these duties cumulatively, meaning that the additional duty is assessed on the sum of the actual (or
transaction) value and the basic customs duty, while the special additional duty is assessed on the sum of
the actual (or transaction) value, the basic customs duty, and the additional duty. This raises concerns about
the potential for importers paying higher duties than they should be liable for on the basis of the actual
value of their imported product.

India’s customs officials generally require extensive documentation, inhibiting the free flow of trade and
leading to frequent and lengthy processing delays. In large part, this is a consequence of India’s complex
tariff structure, including the provision of multiple exemptions, which vary according to product, user, or
intended use. While difficulties persist, India has shown improvement in this area through the automation
of trade procedures, including through the ICEGATE (http://icegate.gov.in) portal and other initiatives.
The government of India is increasing use of electronic forms and only three documents are now required
for importers and exporters for 13 separate government agencies, which has reduced wait times from weeks
to days. India is also integrating an “Indian Trade Portal” for one-stop import and export information. A
Customs Clearance Facilitation Committee was established in April 2015 bringing together representatives
at major ports from each of the regulatory agencies commonly involved in clearing shipments.

After ratifying the WTO Agreement on Trade Facilitation (TFA) in April 2016, India established the
National Committee on Trade Facilitation (NTFC) in August 2016. NTFC will develop the road map for
trade facilitation for India and it will facilitate domestic co-ordination and implementation of TFA
provisions. The United States and India held a joint workshop covering best practices in trade facilitation
in October 2016. The two-day trade facilitation workshop, which included strong attendance from Indian
and U.S. private industry, provided a forum for stakeholders to exchange views and best practices on
customs issues.

GOVERNMENT PROCUREMENT

India lacks an overarching government procurement policy and, as a result, its government procurement
practices and procedures vary among the states, between the states and the central government, and among
different ministries within the central government. Multiple procurement rules, guidelines, and procedures
issued by multiple bodies have resulted in problems with transparency, accountability, competition, and

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efficiency in public procurement. A World Bank report stated that there are over 150 different contract
formats used by the state owned Public Sector Undertakings, each with different qualification criteria,
selection processes, and financial requirements. The government also provides preferences to Indian micro,
small, and medium enterprises and to state owned enterprises. Moreover, India’s defense offsets program
requires companies to invest 30 percent or more of the acquisition cost of contracts above the threshold
value in Indian produced parts, equipment, or services.

While India has started the legislative process for enacting a new Procurement Bill, the Bill is stalled in
Parliament. However, the Indian Ministry of Defense announced in March 2016 a new Defense
Procurement Procedure that increased the offset threshold to 20 billion Indian rupees (approximately $300
million) for defense industry companies contracting with the Indian government and also increased
indigenous content requirements, although flexibility may exist for certain projects.

India’s National Manufacturing Policy calls for increased use of local content requirements in government
procurement in certain sectors (e.g., information communications technology and clean energy). Consistent
with this approach, India issued the Preferential Market Access notification, which requires government
entities to meet their needs for electronic products in part by purchasing domestically manufactured goods.
India is not a signatory to the WTO Government Procurement Agreement, but is an observer.

EXPORT SUBSIDIES

The Indian government’s Foreign Trade Policy (FTP) 2015-2020 announced on April 1, 2015 is primarily
focused on increasing India’s exports of goods and services to raise India’s share in world exports from 2
to 3.5 percent. The FTP consolidated most of India’s existing export subsidies and other incentives into
two main export incentive schemes: the Manufactured Goods Exports Incentive Scheme (MEIS) and the
Service Exports Incentive Scheme (SEIS).

India maintains several export subsidy programs, including exemptions from taxes for certain export-
oriented enterprises and for exporters in Special Economic Zones. Numerous sectors (e.g., textiles and
apparel, paper, rubber, toys, leather goods, and wood products) receive various forms of subsidies,
including exemptions from customs duties and internal taxes, which are tied to export performance. India
not only continues to offer subsidies to its textiles and apparel sector in order to promote exports, but it has
also extended or expanded such programs and even implemented new export subsidy programs. As a result,
the Indian textiles sector remains a beneficiary of many export promotion measures. In July 2016, India
announced subsidies intended to encourage employment generation in the garment sector in addition to
providing for refund of state levies.

India maintains a large and complex series of programs that form the basis of India’s public food
stockholding program. India maintains stocks of food grains not only for distribution to poor and needy
consumers but also to stabilize prices through open market sales. India uses export subsidies to reduce
stocks and has permitted exports of certain agricultural commodities from government public-stockholding
reserves at below the government’s costs. For example, the government authorized the exportation of 66.5
million tons of wheat from government-held stocks during August 2012 to May 2014 at varying minimum
export prices significantly below the government’s acquisition cost of $306 per ton, plus storage, handling,
inland transportation cost, and other charges for exports. In February 2014, the Indian Cabinet Committee
on Economic Affairs made 4 million metric tons of raw sugar eligible to receive export subsidies under a
new, two-year subsidy program. The United States, along with other interested Member countries, has
raised this issue in the WTO Committee on Agriculture.

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Agriculture Programs

India provides a broad range of assistance to its agricultural sector, including credit subsidies, debt waiver,
and subsidies for inputs, such as fertilizer, fuel, electricity, and seeds. These subsidies, which are of
substantial cost to the government, lower the cost of production for India’s producers and have the potential
to distort the market in which imported products compete. In addition, producers of 25 agricultural products
benefit from the government program to sell to the government at minimum support prices. Rice and wheat
account for the largest share of products procured by the government and distributed through India’s public
distribution system. However, in crop year 2014/2015, the Indian government purchased 1.5 million tons
(8.695 million 170 kg bales) of cotton through announced minimum support price operations, at a cost of
nearly U.S. $3 billion. Purchases made through these operations at above market prices significantly
increase the cost to the government and may have the effect of providing a subsidy to the entire crop as
well as distorting market prices and planting decisions. Moreover, in certain years, some of the subsidized
crop procured under MSP operations has been exported through private sector merchants and traders. Such
high guaranteed minimum support prices and extensive government procurement can distort domestic
market prices and incentivize over production, which restricts demand for imports and distorts international
markets.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

India remained on the Priority Watch List in the 2016 Special 301 Report because of concerns regarding
weak protection and enforcement of intellectual property rights (IPR). Through the High-level Working
Group on Intellectual Property under the TPF, the United States and India held numerous and regular
dialogues in 2016 on the range of IPR challenges facing U.S. companies in India with the intention of
creating stronger IPR protection and enforcement in India. The United States and India also hosted
successful workshops on copyright and trade secrets. On May 13, 2016, India released its National IPR
Policy, which had been in draft form for the previous two years. This policy charts a path for IPR policy
and administrative reform. In a notable step, the National IPR Policy announced that the Department of
Industrial Policy and Promotion (DIPP) would serve as the nodal agency for all IPR-related matters,
including copyright issues. Other notable developments in 2016 included the streamlining of patent and
trademark rules to simplify filings, increasing the number of patent and trademark examiners, and
establishing India’s first state-level IPR crime unit in Telangana.

In the field of copyright, procedural hurdles and effective enforcement remain a concern. The
Cinematographic Bill has not been re-introduced since 2010 and online piracy and illegal camcording
continue to proliferate. The lack of a copyright board has created uncertainty regarding how royalties are
to be collected and distributed, and the United States welcomed India’s 2016 TPF commitment that it hopes
to establish one by the second quarter of 2017.

In the area of patents, there are a number of factors that negatively affect stakeholders’ perception of India’s
overall IPR regime, investment climate, and innovation goals. While certain administrative decisions in
2016 upheld patent rights, and certain tools and remedies to support patent holders’ rights do exist in India,
concerns remain over revocations and other challenges to patents, particularly patents for pharmaceutical
products. The United States also continues to monitor India’s application of its compulsory licensing law.
Furthermore, in 2013, the Indian Supreme Court stated that India’s Patent Law creates a second tier of
requirements for patenting certain technologies, like pharmaceuticals, an interpretation that may have the
effect of limiting the patentability of an array of potentially beneficial innovations. The United States
remains concerned over the development and issuance of patent examination guidelines that proposed to
significantly narrow the patentability of software-enabled inventions and reduce clarity for patent
applicants.

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India currently lacks an effective system for protecting against unfair commercial use, as well as
unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for
pharmaceutical and agricultural products. The U.S. Government and stakeholders have also raised concerns
with respect to infringing pharmaceuticals being marketed without advance notice or opportunity for parties
to resolve their IPR disputes.

With respect to trade secrets, U.S. and Indian companies have expressed interest in eliminating gaps in
India’s trade secrets regime, such as through the adoption of standalone trade secrets legislation. The
National IPR Policy called for trade secrets to serve as an “important area of study for future policy
development” and the United States and India held a positive workshop on trade secrets issues in October
2016. Following the workshop, both countries announced important new work under the TPF to advance
bilateral efforts on trade secrets.

SERVICES BARRIERS

The Indian government has a strong ownership presence in major services industries such as banking and
insurance. Foreign investment in businesses in certain major services sectors, including financial services
and retail, is subject to limitations on foreign equity. Foreign participation in professional services is
significantly restricted and in the case of legal services, is prohibited entirely.

Insurance

In March 2015, India’s Parliament enacted the Insurance Laws (Amendment) Act, 2015, which ostensibly
allows up to 49 percent FDI in Indian insurance companies, a change long sought by U.S. and other foreign
companies. FDI in this sector was previously capped at 26 percent. However, the amendment was
accompanied by a new requirement that all insurance companies be Indian “controlled.”

Responding to uncertainty about the meaning of this term, the Insurance Regulatory and Development
Authority of India (IRDAI) promulgated guidelines on October 19, 2015 that prescribe conditions for
satisfying the “Indian control” requirement. The guidelines include: (1) a mandatory requirement that a
majority of directors be nominated by Indian investors; (2) limitations on the rights of foreign-nominated
board members; (3) requirements for how “key management persons” are to be appointed; and (4)
requirements on the manner in which control over “significant policies” of the enterprise must be exercised.

Foreign investors have expressed concern that the new requirements create a rigid structure that ignores
operational realities and will dilute the rights of foreign investors in Indian insurance companies, making
additional FDI in the sector unattractive. As these guidelines are intended to be applied retroactively, the
requirements regarding “control” would apply to existing companies with foreign investment regardless of
whether foreign investors plan to increase their equity, in addition to companies planning future investment.

In December 2015, the IRDAI issued a revision to its draft regulations governing the provision of
reinsurance services in India, proposing that local Indian reinsurers be afforded a mandatory first order of
preference (or right of first refusal) for reinsurance business in India. Such a requirement would severely
restrict the business for which foreign reinsurers could compete and would decrease the interest of foreign
reinsurers in establishing branches in India, with resulting negative impacts to the supply and cost of
reinsurance services in the Indian market.

In October 2016, the Insurance Regulatory and Development Authority (IRDA) circulated a discussion
paper that called for the compulsory public listing of life insurers that have been in operation in India for
seven years or more. Such a requirement to publicly list is rare, and companies generally decide whether

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to undertake an initial public offering based on an analysis of company-specific facts. If implemented, this
requirement would be another measure that would have a discouraging effect on foreign investors.

Banking

Although India allows privately held banks to operate in the country, the banking system is dominated by
state owned banks, which account for approximately 72 percent of total market share and 84 percent of all
Indian bank branches. Most of the other banks are Indian-owned, with foreign banks constituting less than
one half of one percent of the total bank branches in India. Under India’s branch authorization policy,
foreign banks are required to submit their internal branch expansion plans on an annual basis, and their
ability to expand is hindered by non-transparent limitations on branch office expansion.

Foreign banks also face restrictions on direct investment in Indian private banks. Unlike domestic banks,
foreign banks are not authorized to own more than five percent of an Indian private bank without approval
by the Reserve Bank of India (RBI). Total foreign ownership of any private bank from all sources (foreign
direct investment, foreign institutional investors, and non-resident Indians) cannot exceed 74 percent.

Audiovisual Services

U.S. companies continue to face difficulties with India’s “Downlink Policy.” Under this policy,
international content providers that transmit programming into India using satellite must establish a
registered office in India or designate a local agent. U.S. companies have reported that this policy is overly
burdensome. India also requires that foreign investors have a net worth of Rs. 50 million (approximately
$800,000) in order to be allowed to downlink one content channel. A foreign investor must have an
additional Rs. 25 million (approximately $400,000) of net worth for each additional channel that the
investor is allowed to downlink.

The Telecommunications Regulatory Authority of India has introduced new regulations on content
aggregation and distribution that eliminates bundling of channels and certain types of distribution
partnerships. Content aggregation is commonly used internationally, as it allows niche and foreign content
to be bundled into and sold by domestic partners without a large local presence or sales force. The new
regulations are particularly difficult for small and international content providers because these companies
must now interact with each of the 60,000 local cable operators, radio, and TV broadcasters that they seek
to target.

There are also a number of limits on foreign ownership in the audiovisual and media sectors: cable networks
(49 percent); FM radio (26 percent); head end in the sky (74 percent); direct-to-home (DTH) broadcasting
(74 percent); teleports (74 percent); news broadcasting (26 percent); and newspapers (26 percent).
Additionally, pending litigation related to audiovisual services, including the acquisition of content and
telecasting rights and advertising revenue of foreign telecasting companies, is causing uncertainty for
companies considering market entry.

Accounting

Foreign accounting firms face obstacles to entering the Indian accounting services sector. Only accounting
firms structured as partnerships under Indian law may supply financial auditing services, and only Indian-
licensed accountants may be equity partners in an Indian accounting firm.

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Legal Services

At present, membership in the Bar Council of India (BCI), the governing body for the legal profession, is
mandatory “to practice law” in India and is limited to Indian citizens. Foreign law firms are not allowed to
open offices in India. The Advocates Act, which is administered by BCI, provides for foreign lawyers or
law firms to visit India on a reciprocal basis for temporary periods to advise their clients on foreign law and
diverse international legal issues.

Some industry and government actors in India are reviewing the merits of liberalization of the legal services
market in India. In June 2016, BCI published draft rules that would liberalize the legal services sector in
India. The rules would have opened India’s market to non-litigation services (i.e., foreign and international
law counseling, and advisory, arbitration, and other services relating to domestic law), but litigation services
would still have been restricted to Indian lawyers and controlled by the Advocates Act. However, on
September 29, 2016, the BCI rescinded the draft rules on liberalization. The United States and India are
continuing to discuss liberalization of legal services under the TPF.

Architecture

Although Indian companies continue to demand high quality U.S. design for new buildings and
infrastructure development, foreign architecture firms find it difficult to do business in India due to the legal
environment. An uncertain Indian legal regime for architectural and related services has resulted in court
cases against foreign design firms seeking to perform work in India and harassment of their potential clients,
causing significant losses for U.S. companies.

Telecommunications Services & Equipment

Barriers to Entry

India eliminated a 74 percent cap on FDI in Indian wireless and fixed telecommunications providers in
August 2013, though government approval is required for FDI above 49 percent. U.S. companies note that
India’s one-time licensing fee (approximately $500,000 for a service-specific license, or $2.7 million for
an all India Universal License) for telecommunications providers serves as a barrier to market entry for
smaller market companies. The government of India continues to hold equity in multiple
telecommunications firms. These ownership stakes have caused private carriers to express concern about
the fairness of India’s general telecommunications policies. For example, valuable wireless spectrum was
set aside for Mahanagar Telephone Nigam Limited (MTNL) and Bharat Sanchar Nigam Limited (BSNL),
state-owned telecommunications service providers in India, instead of being allocated through competitive
bidding. Although it does not appear that MTNL and BSNL paid a preferential price, they did receive their
spectrum allocation well ahead of privately-owned firms.

Telecommunications Equipment - Security Regulations

In 2009 and 2010, India promulgated a number of regulations negatively impacting trade in
telecommunications equipment, including mandatory transfer of technology and source code, as well as
burdensome testing and certification requirements for telecommunications equipment. India removed most
of these measures in response to international stakeholders’ concerns, but is still seeking to require testing
of all “security-sensitive” telecommunications equipment in India and is expected to implement this
requirement after developing additional indigenous testing capacity. It is unclear whether that capacity will
increase sufficiently in order to be able to implement the testing criteria. U.S. officials continue to urge
India to reconsider the domestic testing policy and to adopt the use of the Common Criteria Recognition

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Arrangement. In 2016, the United States raised issues related to telecommunications security testing
requirements bilaterally under the TPF and in the WTO TBT Committee.

Electronics and Information Technology Equipment - Safety Testing Requirements

Since 2012, the United States has been actively raising the concerns of the U.S. electronics and information
and communications technology (ICT) manufacturers regarding MEITY’s Compulsory Registration Order
(CRO). The CRO prescribes safety standards and in-country testing requirements for electronic and ICT
goods. The policy, which entered into force in January 2014, mandates that manufacturers register their
products with laboratories affiliated or certified by the Bureau of Indian Standards (BIS), even if the
products have already been certified by accredited international laboratories. The government of India has
never articulated how such a domestic certification requirement advances India’s legitimate public safety
objectives. In 2015, the coverage of the CRO increased from 15 to 30 product categories. U.S. stakeholders
have raised concerns regarding delays in product registration due to the lack of government testing capacity,
a cumbersome registration process, and additional compliance costs that can exceed tens of millions of
dollars, including costs associated with factory-level and component–level testing.

The domestic testing requirement is particularly burdensome for Highly Specialized Equipment (HSE),
including servers, storage, printing machines, and ICT products that are installed, operated, and maintained
by professionals who are trained to manage the product’s inherent safety risks. These products pose little
risk to the general public or consumers. U.S. companies have incurred significant expenses providing
testing samples, which were destroyed during the safety testing process in Indian laboratories. Indian
laboratories have also indicated that they do not have the capacity to test some products that require
industrial power supply, exceed household or office voltage, or are very large in size and weight. Moreover,
U.S. exporters are forced to leave their products in these laboratories for extended and undefined periods
of time. To avoid unnecessary and overly burdensome requirements, the United States has recommended
to the government of India that it should exclude HSE from the scope; harmonize labeling requirements
with global practices; harmonize the validity period of test reports and certification; and eliminate re-testing
requirements. The United States raised this issue bilaterally, including during technical exchanges under
the TPF, and multilaterally in the WTO TBT Committee in 2016.

Remote Access Policy

Global telecommunications operators have made significant investments in establishing India’s network
infrastructure. However, sudden changes in policies pertaining to Remote Access (RA) negatively impact
network security and compliance, and ultimately hamper telecommunications operators’ ability to
efficiently operate networks in India. There has been a continuous backtracking on RA policies even though
the same policy was developed by way of a government-industry consultative process.

Despite complying with the new requirements pertaining to the establishment of an in-country storage
server, the DOT has attempted to introduce additional requirements that are not part of any stated policy.
As a result, some operators are experiencing complete uncertainty regarding the RA policy. Clearances of
some operators are not being granted even after meeting the requirements. Instead, carriers are required to
perform additional activities, which are not part of the guidelines. This has affected some operators’ ability
to execute future deployments of services and investments in the network.

Satellite Services

India’s Ministry of Information and Broadcasting (MIB) has issued guidelines that establish a preference
for Indian satellites to provide capacity for delivery of Direct-to-Home (DTH) subscription television
services. In practice, authorized DTH licensees have not been permitted to contract directly with foreign

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satellite operators and have encountered procedural and contracting delays when they have sought to do so.
Rather, DTH licensees must procure any foreign satellite capacity through Antrix, the commercial arm of
the Indian Space Research Organization (ISRO), which, in turn, only permits such procurements if it does
not have available capacity on its own system. This issue is compounded by a lack of transparency
regarding ISRO’s plans for future transponder capacity. If ISRO does permit the use of foreign satellite
capacity, the foreign satellite operator must sell the capacity to ISRO, which then resells the capacity to the
end-user after adding a surcharge.

Foreign satellite operators are thus prevented from developing direct relationships with DTH licensees.
This is a particular concern to the United States, as it puts U.S. satellite operators at a competitive
disadvantage, promotes market uncertainty, and prevents DTH licensees from offering a fuller range of
services from U.S. satellites. The United States continues to encourage India to adopt an “open skies”
satellite policy to allow consumers the flexibility to select the satellite capacity provider that best suits their
business requirements and to promote market access for foreign satellite service providers.

Distribution Services

India requires government approval for retailers selling a single brand of product if foreign ownership is
above 49 percent. Foreign investments exceeding 51 percent are also contingent on, among other things, a
requirement to source at least 30 percent of the value of products sold from Indian sources, preferably from
small and medium sized enterprises (although, DIPP’s Press Note No. 12 (2015 Series) of November 2015
allows the government to relax the local sourcing requirement for “state of the art” or “cutting edge”
technology and where local sourcing is not possible).

India permits up to 51 percent foreign ownership in companies in the multi-brand retail sector, but leaves
to each Indian state the final decision on whether to authorize such FDI in its territory. In addition, where
FDI is allowed, it is subject to conditions, including: (1) a minimum investment of approximately $100
million, at least 50 percent of which must be in “back-end infrastructure” (e.g., processing, distribution,
quality control, packaging, logistics, storage, and warehouses); (2) a requirement to operate only in cities
that have been identified by the relevant state government; and (3) a requirement to source at least 30
percent of the value of products sold from “small” Indian enterprises that have a total investment in plant
and machinery not exceeding $2 million. Several foreign companies have reported that the local sourcing
requirements and other conditions on foreign investment have diminished the commercial case for
expanding investment in India’s retail sector.

Indian states have periodically challenged the activity of direct selling (i.e., the marketing and selling of
products to consumers away from fixed locations) as violations of the Prize Chits and Money Circulation
Schemes (Banning) Act of 1978 (Prize Chits Act), creating uncertainty for companies operating in this
sector. This central government legislation contains no clear distinction between fraudulent activities and
legitimate direct-selling operations. Enforcement of the Prize Chits Act is reserved to the states, which
have adopted varying implementation guidelines and taken unexpected enforcement actions on the basis of
the ambiguous provisions of the Act, including the arrest of a chief operating officer of a direct selling
company.

Stakeholders have asked DIPP to issue guidance establishing a definition of direct selling and clarifying
ambiguities, including uncertainty related to commissions earned in connection with the sale of products.
In 2012, the Ministry of Finance issued draft guidelines designed to guide the preparation of state measures
implementing the Prize Chits Act. Rather than clarifying the distinction between fraudulent schemes and
legitimate business operations, however, the draft contained provisions making many standard direct selling
activities, including activities that go to the core of the direct selling business model, inconsistent with the
Prize Chits Act. In 2016, after extensive advocacy by the U.S. Government, India approved new guidelines

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governing direct selling that established clear legal definitions of direct selling, but enforcement and
application of the new guidelines will still be left to state authorities.

Education

Foreign suppliers of higher education services interested in establishing a presence in India face a number
of barriers, including: a requirement that representatives of Indian states sit on university governing boards;
quotas limiting enrollment; caps on tuition and fees; policies that create the potential for double-taxation;
and difficulties repatriating salaries and income from research.

In June 2016, India’s former planning commission, NITI Aayog, submitted its report to the Prime Minister’s
Office (PMO) and the Human Resource Development (HRD) Ministry calling for the invitation of foreign
universities to set up campuses in India. The report suggested that foreign education providers be allowed
entry into the country via three possible regimes: (1) operation of foreign universities in the country should
be regulated by law; (2) the University Grants Commission (UGC) Act of 1956 should be amended along
with the relevant regulations on universities, to allow foreign universities to be deemed universities; and
(3) to facilitate joint ventures between Indian and foreign institutions, the UGC and the All India Council
for Technical Education (AICTE) regulations should be modified to add viable co-beneficial arrangements
and twinning programs. However, no action has been taken to date with respect to the report’s
recommendations.

BARRIERS TO DIGITAL TRADE

Data Localization

India’s 2015 National Telecom M2M (“machine to machine”) Roadmap (Roadmap) requires all M2M
gateways and application servers serving customers in India to be located within India. The Roadmap also
recommends that foreign SIMs be permitted in devices to be used in India only if they fulfill traceability
criteria and that machines sold and manufactured in India should only be equipped with SIMs of Indian
telecommunications providers. The Roadmap has not been implemented.

The 2012 National Data Sharing and Accessibility Policy, issued by the Ministry of Science & Technology,
requires that all data collected using public funds – including weather data – be stored within the borders
of India. Such localization requirements reduce productivity, dampen domestic investment, and undermine
the ability of information and communications technology companies to offer cutting-edge services.

Data and server localization requirements are imposed across regulatory structures and procurement
contracts in India. For example, in 2015, the Department of Electronics and Information Technology
(DEITY) issued guidelines for a cloud computing empanelment process by which cloud computing service
providers (CSPs) may be provisionally accredited as eligible CSPs for government procurements of cloud
services. However, the policy requires that CSPs store all data in India to qualify for the accreditation.
There is strong evidence that such policies reduce productivity and dampen domestic investment in the
country.

Technology

Indian Internet providers must attain government approval from the Telecom Regulation Authority of India
(TRAI) to employ encryption stronger than 40-bit encryption. This requirement continues to create
regulatory uncertainty for Internet providers seeking to use strong encryption. Most other countries allow
the use of strong encryption standards ranging from 128-bit to 256-bit to ensure the security of sensitive
information exchanged via the Internet and other networks. Encryption standards differ greatly from one

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regulatory agency to another, since each one has its own specific criteria. In September 2015, DEITY
published a draft National Encryption Policy but quickly withdrew it. The draft policy raised a number of
concerns including restrictions on the use of commercially available encryption (by restricting key lengths,
for example) and mandates proprietary information disclosure. India is currently working on a new draft
encryption policy that could potentially introduce market access barriers if it fails to address these issues.
The Ministry of Electronics and Information Technology (MEITY) – the successor agency to DEITY – has
allowed public comments and stakeholder input during the policymaking process.

Internet Services

Intermediary Liability

India’s 2011 Information Technology Rules fail to provide a robust safe harbor framework to shield online
intermediaries from liability for third-party user content. Any citizen can complain that certain content is
“disparaging” or “harmful,” and intermediaries must respond by removing that content within 36 hours.
Failure to act, even in the absence of a court order, can lead to liability for the intermediary. The absence
of a safe harbor framework discourages investment to Internet services that depend on user generated
content.

Taxation

India recently began assessing an “equalization levy,” which is an additional 6 percent withholding tax on
foreign online advertising platforms, with the ostensible goal of “equalizing the playing field” between
resident service providers and non-resident service providers. However, its provisions do not provide credit
for tax paid in other countries for the service provided in India. Further, this levy will result in taxes on
business income even when a foreign resident does not have a permanent establishment in India or when
underlying activities are not carried out in India. The current structure of the equalization levy represents
a shift from internationally accepted principles, which provide that digital taxation mechanisms should be
developed on a multilateral basis in order to prevent double taxation. This levy may impede foreign trade
and increase the risk of retaliation from other countries where Indian companies are doing business.

Electronic commerce

India allows for 100 percent FDI in business-to-business (B2B) electronic commerce, but largely prohibits
foreign investment in business-to-consumer (B2C) electronic commerce transactions. In practice, this has
meant that an inventory-led electronic retailing model cannot attract FDI whereas a marketplace-based
electronic retailing model can still attract FDI. The only exception allowing for B2C foreign investment in
electronic commerce was published in November 2015 by the Ministry of Commerce and Industry, DIPP,
Press Note No. 12 (2015 Series) and states that single brand retailers that meet certain conditions, including
the operation of physical stores in India, may undertake retail trading through electronic commerce. This
narrow exception limits the ability of the majority of potential B2C electronic commerce foreign investors
to access the Indian market.

OTHER BARRIERS

In 2010, India initiated the Jawaharlal Nehru National Solar Mission (JNNSM), which currently aims to
bring 100,000 megawatts of solar-based power generation online by 2022, as well as promote solar module
manufacturing in India. Under the JNNSM, India imposes certain local content requirements (LCRs) for
solar cells and modules and requires participating solar power developers to use solar cells and modules
made in India in order to enter into long-term power supply contracts and receive other benefits from the
Indian government. The United States challenged these requirements through the WTO dispute settlement

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system. In February 2016, a WTO panel found India’s LCRs inconsistent with multiple WTO requirements.
These findings were affirmed by the Appellate Body on September 16 2016, and the DSB adopted the
Appellate Body and Panel reports at a special meeting of the DSB on October 14, 2016. In November
2016, India provided formal notice that it would bring the challenged measures into WTO compliance
within a “reasonable period of time.”

India has steadily increased export duties on iron ore and its derivatives. In February 2011, India increased
the export duty on both iron ore fines and lumps from 5 percent and 15 percent, respectively, to 20 percent
on both, and increased that export duty to 30 percent in January 2012. A 5 percent ad valorem export duty
on iron ore pellets has been in place since January 2014. Furthermore, a 10 percent export duty is levied
on iron ore containing Fe (iron) less than 58 percent since May 2015. In February 2012, India changed the
export duty on chromium ore from Rs. 3,000 per ton to 30 percent ad valorem, an increase at current
chromium ore price levels. In recent years, certain Indian states and stakeholders have increasingly pressed
the central government to ban exports of iron ore. To improve availability of iron ore for the local steel
producers, in March 2016, the government India enhanced and unified the rate of export duty for all types
of iron ore (other than pellets) at 20 percent; earlier a 15 percent export tax was applicable on lumps and 5
percent on fines. India’s export duties impact international markets for raw materials used in steel
production.

Lack of transparency with respect to new and proposed laws and regulations affecting traders remains a
problem due to a lack of uniform notice and comment procedures and inconsistent notification of these
measures to the WTO. This in turn inhibits the ability of traders and foreign governments to provide input
on new proposals or to adjust to new requirements. In February 2014, India’s Ministry of Law and Justice
issued a policy on pre-legislative consultation, which was to be applied by all Ministries and Departments
of the central government before any legislative proposal was to be submitted to the Cabinet for its
consideration and approval. The policy also required central government entities to publish draft legislation
or a summary of information concerning the proposed legislation for a minimum period of 30 days.
Issuance through electronic media was also encouraged in the policy, as were public consultations.
However, despite U.S. requests, the Indian government has provided no information on the implementation
of the policy, other than to clarify it is only intended to apply to draft legislation, not regulations or tariff-
setting.

In addition, in May 2016 the Indian Supreme Court judgement concerning the Telecom Regulatory
Authority of India recommended “Parliament to take up this issue and frame a legislation along the lines of
the U.S. Administrative Procedure Act (with certain well defined exceptions) by which all subordinate
legislation is subject to a transparent process by which due consultations with all stakeholders are held, and
the rule or regulation making power is exercised after due consideration of all stakeholders’ submissions.”
U.S. stakeholders continue to report new requirements that are issued with inadequate public notice and
consultation and without WTO notification. This lack of transparency imparts a lack of predictability to
the Indian market, negatively affecting the ability of U.S. companies to enter or operate in that market. The
United States continues to raise our concerns regarding uniform notice and comment procedures with the
government of India both bilaterally in the TPF and multilaterally in the WTO and other fora.

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INDONESIA
TRADE SUMMARY

The U.S. goods trade deficit with Indonesia was $13.2 billion in 2016, a 5.5 percent increase ($685 million)
over 2015. U.S. goods exports to Indonesia were $6.0 billion, down 15.2 percent ($1.1 billion) from the
previous year. Corresponding U.S. imports from Indonesia were $19.2 billion, down 2.0 percent. Indonesia
was the United States' 35th largest goods export market in 2016.

U.S. exports of services to Indonesia were an estimated $2.5 billion in 2015 (latest data available) and U.S.
imports were $780 million. Sales of services in Indonesia by majority U.S.-owned affiliates were $3.3
billion in 2014 (latest data available), while sales of services in the United States by majority Indonesia-
owned firms were $111 million.

U.S. foreign direct investment in Indonesia (stock) was $13.5 billion in 2015 (latest data available), a 1.2
percent decrease from 2014. U.S. direct investment in Indonesia is led by mining, nonbank holding
companies, and finance/insurance.

Overview

In recent years, Indonesia has enacted numerous regulations on imports that have increased the burden for
U.S. exporters. Import licensing procedures and permit requirements, product labeling requirements, pre-
shipment inspection requirements, local content and domestic manufacturing requirements, and quantitative
import restrictions impede U.S. exports. In addition, the Indonesian government has adopted measures that
impede imports as it pursues the objective of agricultural self-sufficiency. Beginning in late 2015 the
Indonesian government introduced a series of economic reform packages designed to ease regulatory
burdens and attract additional investment, which may signal a renewed emphasis on openness and reform
in Indonesian economic policymaking. However, the impact of these reforms has been limited so far
because of their limited scope and slow implementation.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Toys – Standards and Testing Requirements

In April 2014, Indonesia began enforcing a new mandatory toy regulation (Ministry of Industry (MOI)
Regulation 24/2013). For a two-year transition period until April 2016, the regulation provided for
acceptance of test reports from foreign International Laboratory Accreditation Cooperation-accredited
laboratories, pending negotiation of mutual recognition agreements. After the transition, mutual
recognition agreements would allow acceptance of test reports from laboratories outside Indonesia. No
mutual recognition agreements have been executed, however, leaving imported toys subject to mandatory
in-country testing in Indonesia.

U.S. stakeholders also remain concerned about the frequency of testing under the regulation, which is on a
per-shipment basis for imports but only every six months for domestic products. They also are concerned
about burdensome documentation requirements, as well as specific technical requirements, such as for
formaldehyde, which are not based on the latest International Organization for Standardization (ISO)
standard. In addition, U.S. stakeholders have asked MOI to reduce the inspection frequency once an
importer demonstrates a history of compliance along the lines of the U.S. Consumer Product Safety

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Commission’s post-market surveillance approach. Since the regulation came into effect, importers have
reported that the import testing and registration process has increased from 15 days to an average of 80 to
90 days. In mid-2015, Indonesia indicated that it was considering amending the toy regulation, but has not
done so to date. The United States has pressed Indonesia to amend the regulation and will continue to raise
concerns over this regulation bilaterally and in the WTO Committee on Technical Barriers to Trade.

Bahasa Indonesia Labeling Requirements

In September 2015, Indonesia issued Regulation 73/2015 on product labeling, replacing Regulation
67/2013. Under the new regulation, pre-approved Bahasa Indonesia-language labels are still required on a
wide range of products, including various information and communications technology products, building
materials, motor vehicle goods, household products, and apparel and textiles, that are distributed or sold in
Indonesia. However, the labeling can now be done in Indonesia after importation before the product is
distributed to the market. Indonesian officials have clarified that while the regulation requires that labels
be “embossed or printed on the goods, or wholly attached to the goods,” “permanent stickers” are permitted.

Halal Certification

In September 2014, Indonesia passed Law 33/2014 governing halal products. The law makes halal
certification mandatory for food, including products derived through agricultural biotechnology, beverage,
pharmaceuticals, cosmetics, and chemical products sold in Indonesia, as well as machinery and equipment
used in processing these products. Companies have five years from October 2014 to comply with the new
law. In the meantime, Indonesia has instructed companies to follow existing Indonesia Ulama Council
halal-certification procedures. In September 2015, the Indonesian government established the structure of
the new the Halal Product Assurance Agency under the Ministry of Religious Affairs (MORA). While the
basic structure has been established, other staffing and operational functions are yet to be determined.
MORA is also in the process of drafting an implementing regulation on halal product assurance, which
reportedly is to be finalized in 2017. The United States will continue to monitor developments and engage
with Indonesia on these issues. (See Import Policies Section for information on the pharmaceutical market
access requirements in these regulations.)

In July 2016, the Ministry of Agriculture issued Regulation 34/2016, replacing Regulation 139/2014. As
in previous regulations, all meat and poultry facilities wishing to export products to Indonesia must be fully
dedicated for halal production. However, in practice this rule has only been applied to poultry. In addition,
all poultry slaughterhouses in the country of origin must be fully-dedicated halal manual-slaughter facilities
in order for any facility to be eligible to export to Indonesia and each of the poultry facilities must be
approved by the Ministry of Agriculture and Indonesia’s religious authority for halal.

Prepackaged and Fast Foods – Labeling of Sugar, Salt and Fat Requirements

In September 2015, the Indonesian government delayed implementation of Regulation 30/2013 on the
inclusion of sugar, salt, and fat content information on labels for prepackaged and fast foods. The regulation
also would require inclusion of a health message affixed to labels for processed and fast foods. Indonesia
failed to notify the regulation to the WTO TBT Committee until after it was finalized and in effect. The
United States supports Indonesia’s regulatory and public health effort to improve nutritional literacy and
raise awareness among Indonesians about healthy lifestyle choices, but is concerned about the lack of an
open public consultation process regarding this measure. U.S. stakeholders have raised concerns regarding
the need for further technical clarification and implementing guidance including acceptable methods for
the required nutrient conformity tests, and whether tests performed by foreign laboratories or by companies’
“in-house” laboratories would be acceptable. Indonesia’s strict testing procedure may not allow de minimis
variations between batches and could lead to unnecessary shipment-by-shipment inspections for label

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conformity. The United States submitted written comments on the regulation in 2014, and has raised the
regulation at the WTO TBT Committee meetings, which led Indonesia to delay implementation. As much
as $418 million in annual U.S. prepackaged food exports to Indonesia could be affected by the regulation.

Indonesia Food Law Implementing Regulation

Indonesia’s food and drug regulatory agency, the National Agency of Drug and Food Control (BPOM), has
issued a draft regulation, the “Government Regulation Concerning the Label and Advertisement of Food,”
to implement provisions of the Law 18 on Food of 2012. Among other things, the regulation would prohibit
advertising or promotion of milk products for children up to two years of age, as well as any functional
claims to children under three years of age. The regulation also would severely restrict interactions with
health care providers, and the draft contains additional restrictions, including a ban on advertising for
alcohol and stringent requirements for nutrition labeling. It is unclear when Indonesia intends to finalize
this regulation. The United States has asked Indonesia to notify the measure to the WTO TBT Committee
before finalizing the regulation.

Sanitary and Phytosanitary Barriers

Beef and Pork

Indonesia requires each U.S. meat establishment seeking to export to Indonesia to complete an extensive
questionnaire that includes proprietary information, and to be inspected by Indonesian inspectors, before it
can ship meat to Indonesia. The United States has raised concerns about this approval system with
Indonesia repeatedly, including at the WTO Committee on Sanitary and Phytosanitary matters and at
meetings of the United States-Indonesia Council on Trade and Investment, and will continue to raise
concerns in WTO and bilateral fora. In late 2016, Indonesia visited the United States on an audit and we
are now awaiting the report of that audit.

Animal-Derived Products

Indonesia’s animal health and husbandry law (Law 18/2009, as amended by Law 41/2014) requires
companies that export animal‐derived products, such as dairy and eggs, to Indonesia to complete a pre‐
registration process with the Indonesian Ministry of Agriculture. The law allows imports of these products
only from facilities that Indonesian authorities have individually approved. To date, Indonesia has not
notified the law to the WTO. After a 2011 audit of the U.S. food safety system as it applies to dairy
products, Indonesia agreed to a simplified questionnaire for U.S. dairy facilities seeking to pre-register for
review and approval. The United States is continuing to work with Indonesia to further improve the system
under which U.S. establishments become eligible to export dairy products to Indonesia.

Horticulture

Ministry of Agriculture Regulation 55/2016 establishes the most recent requirements for countries wishing
to export “Fresh Food of Plant Origin” to Indonesia. The regulation specifies that Indonesia must recognize
either the food safety system of an exporting country or a registered food safety testing laboratory serving
that country’s exporters. The United States food safety system currently is recognized under this system,
but the United States must apply for this recognition again in 2017. (See Customs Barriers section for more
information.)

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IMPORT POLICIES

Tariffs

Indonesia’s average MFN applied tariff rate is 6.9 percent. Indonesia periodically changes its applied rates
and over the last five years has increased its applied tariff rates for a range of goods that compete with
locally-manufactured products, including electronic products, electrical and non-electrical milling
machines, chemicals, cosmetics, medicines, wine and spirits, iron wire and wire nails, and a range of
agricultural products including milk products, animal and vegetable oils, fruit juices, coffee, and tea. Since
December 2011, the average tariff rate for oilseeds have fluctuated between zero and 5 percent. As of
December 2016, the tariff on soybeans is zero.

Indonesia’s simple average bound tariff rate of 37 percent is much higher than its average applied tariff.
Most Indonesian tariffs on non-agricultural goods are bound at 40 percent, although tariff rates exceed 40
percent or remain unbound on automobiles, iron, steel, and some chemical products. In the agricultural
sector, tariffs on more than 1,300 products have bindings at or above 40 percent. Tariffs on fresh potatoes,
for instance, are bound at 50 percent, although the applied rate is 20 percent. The high bound tariff rates,
combined with unexpected changes in applied rates, create uncertainty for foreign companies seeking to
enter the Indonesian market. U.S. motorcycle exports remain severely restricted by the combined effect of
a 60-percent tariff, a luxury tax of 75 percent, a 10-percent value-added tax, and the prohibition of
motorcycle traffic on Indonesia’s highways.

In late 2016, Ministry of Finance issued regulation 182 of 2016, which levies a 7.5-percent charge on certain
imported goods (known as “consignment goods”) shipped by business entities regardless of the tariff rate
in Indonesia’s WTO and FTA schedules.

Taxes and Luxury Taxes

Indonesia assesses an income tax on the payment of delivery of goods and activities related to import
through the issuance of the Ministry of Finance Regulation No.175/2013. Import of certain goods listed in
this regulation is subject to a 7.5-percent income tax rate based on the import value. Unlisted goods
imported by holders of an importer identification number (Angka Pengenal Importir or API) are subject to
a 2.5-percent tax rate with the exception of soybeans, wheat, and wheat flour, while non-API importers are
charged a 7.5-percent- rate.

Luxury goods (defined as goods not considered necessities), imported or locally produced, may be subject
to a luxury tax of up to 200 percent. Currently, however, there are no luxury goods subject to the 200
percent rate, and the applied luxury tax rates generally range from 10 to 75 percent, depending on the
product. Finance Ministry Regulation 106, issued in June 2015, updated luxury tax rates for certain non-
motor vehicle luxury goods, including yachts, aircraft, firearms, and certain types of housing.

Pursuant to Government Regulation 22/2014, issued in March 2014, the current highest tax rate applied is
125 percent for special luxury cars. However, under Regulation 41/2013, the luxury goods sales tax base
rates were lowered for motor vehicles that meet certain environmental requirements. Luxury sales taxes
were reduced by up to 100 percent for motor vehicles with an internal combustion engine with a cylinder
capacity up to 1,200 cc and a fuel consumption rate of at least 20 kilometers per liter of fuel, or a
compression ignition engine (diesel or semi-diesel) with a cylinder capacity of up to 1,500 cc and a fuel
consumption rate of at least 20 kilometers per liter of fuel. A luxury tax reduction of 50 percent is granted
for motor vehicles using advanced technology diesel or petrol engines, biofuel engines, hybrid engines, or
compressed natural gas (CNG) or liquefied gas for vehicles (LGV) dedicated engines, with fuel
consumption of more than 28 kilometers per liter of fuel or other equivalent. A luxury tax reduction of 25

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percent is granted for motor vehicles that use advanced technology diesel or petrol engines, dual petrol-gas
engines (CNG kit converter or LGV), biofuel engines, hybrid engines, or CNG or LGV dedicated engines,
with fuel consumption ranging from 20 kilometers per liter to 28 kilometers per liter of fuel.

Although Indonesia has eliminated its luxury tax on imported distilled spirits, the current excise tax regime
imposes higher excise taxes on imported spirits than on domestic spirits. Excise tax rates are 150 percent
on spirits and 90 percent on wine.

Import Licensing

Indonesian importers must comply with numerous and overlapping import licensing requirements that
impede access to Indonesia’s market. Ministry of Trade (MOT) Regulation 70/2015 came into effect in
January 2016, replacing MOT Regulation 27/2012 as amended by Regulation 59/2012. The new regulation
requires all importers to obtain an import license as either importers of goods for further distribution (API-
U) or as importers for their own manufacturing (API-P), but importers are not permitted to obtain both
types of licenses. In response to stakeholder concerns, in December 2015, MOT issued Regulation
118/2015 on complementary goods, which allows companies that operate under an API-P import license to
import finished products for complementary goods, market testing, or for after sales service purposes, as
long as the goods are new, consistent with the company’s business license and meet import requirements.

In October 2015, MOT issued Regulation 87/2015 on the Import of Certain Products (replacing Decree
56/2009, which had been extended through MOT Regulation 83/2012). Like its predecessors, Regulation
87/2015 requires pre-shipment verification by designated companies (known in Indonesia as “surveyors”),
at the importer’s expense, and limits the entry of imports to designated ports and airports. In addition,
Regulation 87/2015 maintains non-automatic import licensing requirements on a broad range of products,
including electronics, household appliances, textiles and footwear, toys, food and beverage products, and
cosmetics. However, for holders of an API-U license, Regulation 87/2015 appears to eliminate the
additional requirement to register as an importer of certain products.

MOT Regulation 82/2012, as amended by Regulations 38/2013, 68/2015, 41/2016, and MOI Regulation
108/2012, in effect since January 2013, imposes burdensome import licensing requirements for cell phones,
handheld computers, and tablets. Under Regulation 82/2012, importers of cell phones, handheld computers,
and tablets are not permitted to sell directly to retailers or consumers, and they must use at least three
distributors to qualify for a MOT importer license. MOT Regulation 41/2016 requires 4G device importers
to provide evidence of contributions to the development of the domestic device industry or cooperation
with domestic manufacturing, design, or research firms. In addition, U.S. companies have reported that, in
some cases, MOI is informally limiting import quantities under existing licenses (issued under MOI
Regulation 108/2012) to protect locally-manufactured cell phones, handheld computers, and tablets. (See
below Barriers to Digital Trade section for related information.)

Import of Used Capital Goods

In December 2015, MOT issued Regulation No.127/2015 on Import Provisions for Used Capital Goods,
replacing Regulation No. 75/2013. The new regulation came into force on February 1, 2016 and remains
in effect until December 31, 2018. Under the new regulation, capital goods of all types must appear on an
approved list to be eligible for import and are subject to age restrictions ranging from limitations of 15 to
30 years. Under MOT 127/2015 used medical devices are no longer eligible for import. The regulation
requires importers to apply for import approval from the MOT; the approval is effective for one year from
issuance and can be extended once for a maximum of 60 days. The new regulation also eliminates the
provision in MOT 73/2013 that permitted non-capital goods not on the approved-used goods list to be
imported in certain amounts with a recommendation from the relevant authority. The approval process for

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import of used capital goods not included on the list remains unclear. The regulation has made it more
difficult for U.S. companies to import spare parts and refurbished equipment, disrupting their ability to
provide post-sales service, as well as hampering their customers’ operations.

Import Licensing for Agricultural Products

Import licensing requirements also apply to certain horticultural products. In order to import horticultural
products into Indonesia, Ministry of Agriculture (MOA) and MOT regulations require Indonesian importers
to obtain: (1) an Import Recommendation of Horticultural Products (RIPH) from MOA; and (2) an Import
Approval (SPI) from MOT. Import approvals are issued on a biannual basis and are valid for one six-month
period. RIPHs specify, inter alia, the product name, HS code, country of origin, manufacturing location
(for industrial materials), and entry point for all horticultural products the applicant wishes to import. After
securing an RIPH, an importer must obtain an SPI from MOT before importing horticultural products. An
SPI specifies the total quantity of a horticultural product (by tariff classification) that an importer may
import during the period for which the SPI is valid. Importers cannot amend existing SPIs or apply for
additional ones outside the application window.

Indonesia has updated its import rules on horticultural products through MOT’s Regulation 71/2015
(superseding MOT Regulations 16/2013, 47/2013, and 40/2015), but the new regulation makes few
substantial changes. Import licenses still are required and quantities will be allocated subject to the
importer’s cold storage capacity. MOT eliminated the 80-percent rule for horticultural products, which
imposed punitive measures on importers that used less than 80 percent of the quota allotted under their
import permits. However, importers state that they must file import-realization reports and that the 80-
percent rule is still being implemented informally. This regulation also specifies that the total import
allocation will be set annually and that importers are no longer required to register as horticultural product
importers. MOA also maintains seasonal import restrictions on certain horticultural products. For
example, oranges can only imported in months outside of Indonesia harvest periods.

Indonesia changed its requirements for importation of beef in 2016. Under Regulation 34/2016, all kinds
of bovine meat cuts, including variety meats and offal, are allowed for import. Additional changes include
the extension of import license validity to six months, and the elimination of a rule requiring importers to
use at least 80 percent of their allotted import licenses. Despite these changes, the import licensing
procedures continue to hinder Indonesia’s beef imports. For example, import licenses are issued for specific
countries of origin, and importers cannot change sourcing to respond to evolving market conditions. Also,
Indonesia only issues import licenses for meat originating in approved facilities. Approvals for new facility
require on-site inspection by MOA, but MOA lacks the resources to inspect all interested U.S. facilities.
Indonesia also limits trade through practices not covered by its written regulations. For example, certain
importers have reported that the Indonesian Ministry would only approve approximately 10 percent of
quantity of beef offal that they have requested in their import licensing application. Additionally, importers
are required to sell beef at prescribed reference prices in traditional wet markets as a condition for the
issuance of import licenses. Finally, although Indonesia has stated that it will issue import licenses to any
importer at any quantity, importers report that the Indonesian Ministry will refuse licenses to importers who
request quantities above a certain threshold determined by the Indonesian government.

Similar to the prior import regulations, the new import regulations restrict the import of poultry and poultry
products. The regulations governing animals and animal products maintain a positive list of products that
may be imported with a permit. The regulations provide for the import of whole, fresh or frozen poultry
carcasses (chicken, turkey, or duck), but not for the import of poultry parts, effectively eliminating
importation of poultry parts. Additionally, although the regulations provide for the import of whole-chicken
carcasses, Indonesia in practice does not issue import permits covering these products. This practice also

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covers whole duck and turkey carcasses, as Indonesia has not issued import permits for these products since
December 2013.

MOT regulation 63/2016 “Farmer Level Purchase and Consumer Level Selling Reference Prices” sets
reference prices to ensure availability and price stability for agricultural products. The regulation covers
seven commodities: rice, corn, soybeans, sugar, shallots, chilies, and beef. According to MOT 63/2016,
the Indonesian government (through Indonesia’s state procurement body, the Bureau of Logistics
(BULOG), and other state-owned enterprises) is required to carry out market operations in the event that
market prices fall below buying reference prices or rise above selling reference prices. In its initial
implementation of this new regulation, the Ministry of Agriculture has assigned PD. Pasar Jaya (a
provincial government-owned company) to distribute sugar to consumers at a maximum price of Rp.
12,500/kg. The Indonesian government also is currently requiring beef importers to sell beef at set prices
in Jakarta’s traditional markets as a condition for the issuance of import licenses. Sales to modern retail
outlets, as well as hotel, restaurant and institutional buyers are not bound by government-set prices.

The licensing regimes for horticultural products and animals and animal products have significant trade-
restrictive effects on imports, and the United States has repeatedly raised its concerns with Indonesia
bilaterally and at the WTO. Because Indonesia failed to address these concerns, in January 2013, the United
States requested consultations with Indonesia under the WTO’s dispute settlement procedures. After the
consultations failed to resolve the concerns, the United States requested establishment of a WTO dispute
settlement panel, and a panel was established in April 2013. In August 2013, New Zealand joined the
dispute by filing its own request for consultations to address Indonesia’s measures. At the same time, the
United States filed a revised consultations request to address recent modifications to Indonesia’s measures
and to facilitate coordination with co-complainant New Zealand. A panel was established in May 2015,
and the panel held meetings with the parties on February 1-2, 2016 and April 13-14, 2016. On the December
22, 2016, the WTO issued the panel report, finding for the United States and New Zealand on 18 out of 18
claims that Indonesia is applying import restrictions and prohibitions that are inconsistent with WTO rules.
On February 17, 2017, Indonesia appealed the ruling. WTO rules provide that the WTO Appellate Body
must issue its report within 90 days of the filing of the appeal.

Pharmaceutical Market Access

The United States continues to have concerns about barriers to Indonesia’s market for pharmaceutical
products. Ministry of Health Decree 1010/2008 requires foreign pharmaceutical companies either to
manufacture locally or to entrust another company that is already registered as a manufacturer in Indonesia
to obtain drug approvals on its behalf. Among its requirements, Decree 1010/2018 mandates local
manufacturing in Indonesia of all pharmaceutical products that are five years past patent expiration, and
also contains a technology-transfer requirement. A subsequent pair of regulations, Regulation 1799/2010
and an updated regulation on drug registration from the BPOM (most recently revised in Regulation
16/2015), provide additional information about the application of the local manufacturing requirements and
applicable exceptions. In May 2016, Indonesia revised its negative investment list to raise the foreign
investment cap for the manufacturing of raw materials for medicines from 85 percent to 100 percent in an
apparent effort to redress shortages of raw materials, which are almost exclusively imported. However,
foreign investments in finished drugs industry are still capped at 85 percent. The United States also remains
concerned by Indonesian government statements indicating that Indonesia failed to abide by domestic legal
procedures in issuing a compulsory license decree in 2012 and indicating that Indonesian patent law does
not require individual merits review in connection with the grant of compulsory licenses. The United States
will continue to monitor the implementation of these regulations. (See IPR Section for related information
on the Patent Law.)

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The manufacture and distribution of medical devices now face foreign-investment caps of 33 percent and
49 percent, respectively, while previously they were not included in the negative investment list. BPOM
determined in 2016 that it would not follow through with a 2015 proposal to regulate certain nutritional
supplements as “Foods for Special Medical Purposes” in a manner that would prohibit their promotion,
sale, and distribution directly to the customer. Indonesia adopted a bill in September 2014 requiring halal
certification of pharmaceuticals as well as other products. The United States will continue to monitor the
status of the implementing regulations for this bill, including the potential impact on market access for
affected products. (See TBT Section for related information on the Halal Law.)

The innovative pharmaceutical industry has also raised concerns regarding the transparency of and
opportunity for meaningful stakeholder engagement within the Indonesian pricing and reimbursement
system. In particular, stakeholders report a lack of clarity and certainty regarding how pharmaceutical
products are selected for listing on the Indonesian National Formulary and whether and for how long such
products will remain on the formulary. The United States will continue to engage Indonesia on this issue
and request that the Ministry of Health have quarterly meetings with U.S. stakeholders to discuss these
issues.

Quantitative Restrictions on Imports

Indonesia imposes restrictions on feed corn imports, limiting imports to BULOG only. (Some corn imports
intended for starch manufacturing are allowed.) As Indonesia’s sole importer of feed corn, BULOG
prioritizes corn distribution to small-holder poultry farmers. The import volume is set based on the level
of domestic feed production. Other feed millers are obligated to use locally produced feed corn, but have
expressed concern that they are unable to obtain quantity sufficient to maintain the poultry industry’s
growth.

Indonesia bans salt imports during the agricultural harvest season. It requires salt importers to be registered
and to purchase domestic supplies as well as imports. Indonesia also maintains a seasonal ban on imports
of sugar, in addition to limiting the annual quantity of sugar imports based on domestic production and
consumption forecasts. Indonesia bans exports of raw and semi-processed rattan.

Indonesia applies quantitative limits on the importation of wines and distilled spirits. Companies seeking
to import these products must apply to be designated as registered importers authorized to import alcoholic
beverages, with an annual company-specific quota set by MOT.

Product Registration

BPOM has been working to improve the efficiency of its product e-registration system for low-risk
products, although the Ministry of Health acknowledges that a lack of technical knowledge will continue
to delay registration of pharmaceuticals and sophisticated medical devices. Registration now takes between
nine months to one year. Still, concerns remain about proposed changes to the registration requirements
and submission process that can further complicate product registration. U.S. stakeholders continue to
express concern about the process to obtain product registration numbers (known as ML registration
numbers). The United States will continue to monitor developments in this area.

Product Testing

BPOM sets out requirements for testing of heavy metals in food, drugs and cosmetics in BPOM Regulation
17/2014. BPOM 12/2015 provides further guidance on this requirement, which is fulfilled via a certificate
of analysis. A 2016 BPOM circular letter extended a certificate’s validity from six months to one year. In
practice, Indonesian customs requires each shipment to provide a separate test in addition to the

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certificate. This measure appears targeted at limiting exports and adds unnecessary costs. In addition, in
the case of cosmetics, U.S. and other stakeholders have expressed conc